Академический Документы
Профессиональный Документы
Культура Документы
COM
India’s Mega Online Education Hub for Class 9-12 Students,
Engineers, Managers, Lawyers and Doctors.
Free Resources for Free Resources for Free Resources for Free Resources for Free Resources for
Class 9-12 Students Engineering Students MBA/BBA Students LLB/LLM Students MBBS/BDS Students
• Lecture Notes • Lecture Notes • Lecture Notes • Lecture Notes • Lecture Notes
• Project Reports • Project Reports • Project Reports • Project Reports • Project Reports
• Solved Papers • Solved Papers • Solved Papers • Solved Papers • Solved Papers
View More » View More » View More » View More » View More »
Please note none of the content or study material in this document or content in this file is prepared or
owned by Studynama.com. This content is shared by our student partners and we do not hold any
copyright on this content.
Please let us know if the content in this file infringes any of your copyright by writing to us at:
info@studynama.com and we will take appropriate action.
UNIT – I
The purpose of introducing this subject is to give an overview about the legal
environment and the intricacies involved in international trade.
Law is defined as a set of rules established by a government to regulate the
conduct of individuals and groups in a society. These rules are legal obligations
imposed on citizens and enforced by the Sovereign. It is the duty of citizens to
obey these rules and those who violate them are liable for punitive action. One
of the major reasons for the development of law was to give protection to
individuals, to society, and to property. Law is not limited to regulating
relationships between individuals or between individuals and their society but
m
also be used as a positive force to promote worthwhile social goals.
c
In fact, in our consumer-oriented society law touches every oaspect of business
. Law is. Business law is
a
life. Therefore, it is imperative to know what Business
m
that part of the law which deals with mercantile transactions of mercantile
d
level. Understanding business
t u
without violating rules framed by the government. The following brief
m
this reference is to facilitate uniformity in deciding similar cases. It may be
found to be erroneous. To n
a
noted that precedents may be overruled if the judgment pronounced earlier is
structure, a discussion y
enable students to have a better view of the legal
m
cases are resolved and the judiciary system that exists in Germany as compared
c
to other countries. Two important codes play a significant orole. They are the
. The civil code has 2300
a
German Civil Code and the German Commercial Code.
t u has only two wings - the executive and judicial, and the
Arabian government
King Sis the supreme authority. The regulations approved by the King are
published in the official gazette. There are agencies to assist in regulating the
administration of the Kingdom. The most important among them are the
Supreme Commission on Labor Disputes, the Commissioner for the Settlement
of Commercial Disputes and Board of Grievances. A well regulated country,
Saudi Arabia strongly abides by the Holy Quran. As such students will note that
unlike common law systems, charging of interest is prohibited among many
other things. Dispute resolution normally results in damages or recession.
Despite the difference in the regulatory structure, the importance of Saudi
Arabia in present day economy is continually growing.
Japan, is perhaps the only example of 'real development' in almost all
areas. Japan which was battered and ravaged during the World War II, is now
among the most advanced counties of the world. A look at its legal system
shows traces of the Tokugawa period influence of the German Civil Code and
the American influence. Right from the early days, Japanese gave much
importance to the Confucian system where the head of the family/village was
the deciding authority. His word was rarely contested. The process of
industrialization in the nineteenth century saw Japan draw up a Civil Code based
on the German Civil Code This however, underwent a drastic change after the
m
Second World War when the American influence separated the church and state
and introduced a parliamentary system with a duly electedo
c Prime Minister and a
. Japanese have a different
a
bicameral legislature. Despite, the American influence
d
settlement of disputes and
China u
qualityS
t has for many hundreds of years been known for the superior
of goods it produces and its ancient medical practice. Thus, international
trade has been an integral part of Chinese economy. Very much like the
Japanese Confucian attitude, the Chinese have deep faith in behaving in an
honorable and ethical manner. Until recently, the attitude of Chinese towards
practitioners of law has been discerning. Primarily because it has gone through a
lawless period during the Cultural Revolution known as 'Dark Ages' in 1966 and
the second revolution which started in 1976 with the death of Mao Zedong's.
Today, China has a large, complex system of agencies, the most important
among them being Ministry-of Foreign Economic Relations and Trade which
renders guidance in matters related to foreign trade. The governing statute for
foreign trade is Foreign Economic Contract Law (FECL). According to FECL
all contracts should be in writing, must express the real intent of the parties who
must have legal contractual capacity and the contract should not violate law or
public policy. Before resorting to arbitration, Chinese prefer to settle disputes
out of court through friendly consultations, which again reflects their reliance on
traditional value of honorable and ethical behavior.
European Community - The aftermath of the Second World War set
the world leaders to think of a united Europe to achieve economic alliance and
compatible political and legal setup. Thus, started the European community. The
first step towards this was, building a common market between France and
m
Germany for coal and steel through the European Coal and Steel Community
(ECSC). The success of this led to signing of a number
c oof treaties like the
. and the Maastricht Treaty,
a
EURATOM, European Economic Community (EEC)
m
all directed towards political and economic unity. To simplify the administration
of ECSC, EURATOM and EEC, a merger
a treaty was subsequently signed.
The European communityn
yministers, parliament, commission, courts of justice
has a well organized administrative set-up
d
comprising of council of
and auditors, u
t and advisory committees. These community institutions have
S
developed substantive laws- which prevail over individual country laws and
create rights in individuals and businesses which are to be protected by national
courts.
INTERNATIONAL TRADE - LEGAL FRAMEWORK
We have looked briefly into the various laws prevalent in different
countries. Let us now concentrate on what will be the scenario if two or more
nations wish to have trade relationships and the various regulations that one has
to follow.
GATT:
The General Agreement on Tariffs and Trade popularly known as GATT
attempts to promote multilateral fair trade and reduce trade barriers. Members of
GATT reduce trade barriers by granting 'Most Favored Nation' (MFN) status
and charging the lowest applicable tariff rates for imports from MFN. GATT
provides for promotion of fair trade by prohibiting 'dumping' and 'unfair
subsidies, bounties and grants'.
Lack of adaptability of GATT, to regulate world trade has resulted in
nations entering into a direct trade relationship like the North American Free
Trade Agreement for example. In other cases some developed nations have
come forward to help the less-developed countries by permitting duty free
m
imports of certain items under the Generalized System of Preferences.
Regulation of Imports and Exports
c o
Tariff or duty which is levied on imports is.
a
one of the important sources
m
of income for a country. Tariff is levied based on the classification of products,
a
its value which usually is the transaction value and its place of origin.
The rate of duty levied on n
y product. To safeguard domestic interests some
imported goods has significant impact on the
d
domestic market for that
countries mayu
qualityS
t resort to imposition of non-tariff barriers like adherence to strict
standards in order to ensure safety to health and environment. Quotas
and embargoes are the other forms of non-tariff barriers.
On the other hand, countries wanting to promote exports may extend
technical, market, and financial assistance and tax benefits to the exporters. To
check undue assistance, GATT imposes countervailing duties on exports
supported by unfair subsidies. The United States regulates its exports under the
Export Administration Act of 1979. The primary objective being to protect its
economy in case of short supply, to protect national security and to further its
foreign policy objectives. The US has a complex regulatory structure for both
imports and exports which includes the anti-boycott regulations.
Global Business Enterprises
Let us now look at another important aspect of international law relating
to international or global business organizations. International business
organizations often known as Multinational Enterprises (MNE) are
organizations having business entities in two or more countries. These entities
are so interlinked that one exercises significant influence over the other.
MNE can adopt different channels for doing business. It may choose to
do business either through its own firm or through agents and distributors. In the
case of an agent and principal relationship, depending upon the country in which
m
the agent would be operating, the terms and conditions are decided. Some
c ounfair termination
countries provide for protective measures to safeguard against
.
a
of the agency.
m
Distributors on the other hand buy goods for the purpose of selling them
a
and offering after-sales and warranty services. Unlike in agency contracts,
n
contracts are normallyy
distributors cannot bind the manufacturer with their acts. Distributorship
investment onu
d for a fairly lengthy period as they involve large
m
of businesses. Hence, the need to encourage their growth and also provide legal
protection against misuse, theft, etc.
c o
.to control the reproduction
a
Copyright law gives authors and artists the right
a
country. By and large, protection is granted
n
y right to manufacture or use an invention for a
years, and for photographic and works of applied art for25 years.
d
Patents provide exclusive
specific periodu
coupleS
t of tine. Patent laws are primarily territorial. However, there are a
of international agreements to provide patent protection like the
European Patent Convention and the Patent Co-operation Treaty. Lack of a
universally accepted patent law hinders introduction of a product on a global
basis.
Trademark is any work, name, symbol, or device or any combination
thereof adopted and used by manufacturer or merchant to identify his goods and
distinguish them from those manufactured or sold by others.
Apart from protecting their intellectual property rights, business
enterprises are faced with a more complex problem of dealing with piracy and
counterfeit goods. Pirators and counterfeiters cause great harm as they deprive
the owner of the protected work his share of royalty, the authorized dealer his
profit and the buyer of quality product. The US government through an
amendment of the Trade Act of 1974, attempts to counteract such practices
under Section 301 of the said act.
Another problem faced by business enterprises is the gray market, where
legitimate goods are marketed through unauthorized channels. Protecting
intellectual property rights do not prevent governments from expropriating such
property for public use. The criteria for such expropriation should be that these
properties are taken for public use and a ‗just‘ compensation is paid for their
acquisition.
The MNE as world citizen
m
c
Merely by their size, MNE have an edge over otherocorporations. Their
. They also possess the
a
ability to access capital helps in developing countries.
m
powers to exploit natural and human resources, demolish local economies and
a
corrupting and controlling political figures.
The United Nations n
y efforts for evolving a code of conduct for MNE to
Commission on Trade and Development
d
(UNCTAD) has been making
t u
ensure their positive influence on the economy and avoid economic menace like
m
The CISG is organized in four parts. Part I (Articles I to 13) contains the
c
Convention's general provisions, including rules on the scopeoof its applications
and rules of interpretation. Part II (Articles 14 to .
a
24) governs the formation of
m
contracts. Part III (Articles 25 to 88) governs the rights and obligations of buyers
a
and sellers. Part IV (Articles 89 to l0l) contains provisions for the ratification
y n
and the entry into force of convention.
d
The essentials of a valid contract are that there should be an offer and
acceptance andu
tfor incorporating the terms and conditions. This is important as a
consideration. Utmost care is required to be taken while drafting
S
the contract
single contract can be incorporated in more than one way in case of any
ambiguity. To ensure uniformity in international contracts, certain common
terms relating to price, delivery, title, insurance like FOB, CIF, C&F, FAS, etc.,
have come into use. These are known as Incoterms. These are used in contracts
involving sale of goods.
It is reiterated that the term ‗contract‘ is not restricted only to sale of
goods. There are contracts for setting up ventures, mergers and acquisitions and
for transfer of intellectual property.
In order to ensure performance of contracts and provide for remedy in
case of dispute, CISG also provides a resolution mechanism. Generally, the
choice of forum and enforcement clauses is included in a contract, so as to
define the area of jurisdiction in case of a dispute.
Letters of Credit
Naturally, a contract for sale of goods involves purchase of goods for
consideration .which is often money, and the mode of payment is an important
clause in a contract. With today's dynamic market transactions across countries,
Letters of Credit" (LOC) is considered to be one of the safest mode of payment.
(LOC is an instrument issued by a bank or other person at the request of an
account party that obliges the issuer to pay to a beneficiary a sum of money
m
within a certain period of time upon the beneficiary's presentation of documents
specified by the account Payee)
c o
There is another use for LOC in America .
a
and Japan. It is the "standby
presentation ofu
d because the LOC requires payment to be made against
S
foreign bank, or if there is concern about the political or economic risk
associated with the country in which the bank is located, it is advised that a letter
of credit issued by a foreign bank be "confirmed" by a U.S. bank. This means
that the U.S. bank adds its pledge to pay to that of the foreign bank. Letters of
credit that are not confirmed are called "advised" letters of credit. The local
Department of Commerce district office or an international banker will help
exporters determine whether a confirmed or advised letter of credit is
appropriate for a particular transaction.
Types of Letter of Credit
Irrevocable (unconfirmed) - A letter of credit that cannot be amended
or cancelled without prior mutual consent of all parties to the credit. Such a
letter of credit guarantees payment by the bank to the seller/exporter so long as
all the terms and conditions of the credit have been met. This is the most popular
form of letter of credit.
Revocable (confirmed) - A letter of credit that can be cancelled or
altered by the drawee (buyer) after it has been issued by the drawee's bank.
Revocable letter of credits are rarely used because of security concerns.
Transferable- A letter of credit that can be redirected at the sellers
request. These are used when an export broker is involved. Once all conditions
m
on the letter of credit are met, the broker's bank receives the payment, takes out
c o
his commission, and completes the transaction as negotiated.
Sight - A letter of credit that requires .
a
payment to be made upon
d
Changes made to
t
charged by theu banks involved in amending the letter of credit may be paid
eitherSby the buyer or the seller, but the letter of credit should specify which
party is responsible. Since changes are costly and time-consuming, every effort
should be made to get the letter of credit right the first time.
An exporter is usually not paid until the advising or confirming bank
receives the funds from the issuing bank. To expedite the receipt of funds, wire
transfers may be used. Bank practices vary, however, and the exporter may be
able to receive funds by discounting the letter of credit at the bank, which
involves paying a fee to the bank for this service. Exporters should consult with
their international bankers about bank policy on these issues.
Payment and Risks with Letter of Credits:
m
bank
m
and economic
a
conditions of
ynAfter
issuing bank
tu
made confirming made, but
S
bank relies on
exporter to
ship goods
described in
the
documents
aNone
irrevocable
a
irrevocable
Same as nAfter
payment
Transferable
y payment Same as None
d
irrevocable irrevocable
Assignment u
of Proceedst irrevocable
Same as After Same as None
S payment irrevocable
m
transfer of goods or services from a foreign country.
Payment Problems
The best solution to n
a
yfail and the sum involved is large enough to warrant
a payment problem is to negotiate directly with the
d
customer. If negotiations
u
t parties can agree to take their dispute to an arbitration agency,
the effort, obtain the assistance of your bank, legal counsel, and other qualified
S
experts. If both
this step is faster and less costly than legal action. The International Chamber of
Commerce handles the majority of international arbitrations and is usually
acceptable to foreign companies because it is not affiliated with any single
country.
For more information on these issues, contact the U.S. Council for
International Business, American National Committee of the ICC, 212-354-
4480; American Arbitration Association, 212-484-4000; Trade Remedy
Assistance Office International Trade Commission, 202-205-2200.
Risk Factors Influencing Payment Terms:
n
Buyer
yYes
d
Cash Flow Adjustable Adjustable
tu
Timing and
Needs
S
Payment Terms
A list of things to consider when determining the best price for your
product overseas.
Terms of Sale
Terms in international business transactions often sound similar to those
used in domestic business, but they frequently have very different meanings. For
this reason, the exporter must know the terms before preparing a quotation or a
pro forma invoice.
Preparing Quotes for International Buyers
While a sales contract that spells out the details of a transaction is
warranted for larger, more complex deals, a quotation in the form of a
Proforma Invoice may be sufficient for smaller transactions.
Learn how to prepare Pro forma invoices and the information they should
contain and more about how to prepare quotes.
Proper pricing, complete and accurate quotations, choosing the terms of
the sale, and selecting the payment method are four critical elements in selling a
product or service overseas. Of the four, pricing can be the most problematic,
even for an experienced exporter.
Pricing Considerations
The price considerations listed below will help an o
m
. c exporter determine the
a
best price for the product overseas.
a
What type of market positioning
company want to conveyn
y reflect the product's quality?
from its pricing structure?
d
Does the export price
t u
Is the price competitive?
S Should the firm pursue market penetration or market-skimming pricing
objectives abroad?
What type of discount (trade, cash, quantity) and allowances
(advertising, trade-off) should the firm offer its foreign customers?
Should prices differ by market segment?
What should the firm do about product line pricing?
What pricing options are available if the firm's costs increase or
decrease? Is the demand in the foreign market elastic or inelastic?
Are the prices going to be viewed by the foreign government as
reasonable or exploitative?
Do the foreign country's antidumping laws pose a problem?
As in the domestic market, the price at which a product or service is sold
directly determines a firm's revenues. It is essential that a firm's market research
include an evaluation of all of the variables that may affect the price range for
the product or service. If a firm's price is too high, the product or service will not
sell. If the price is too low, export activities may not be sufficiently profitable or
may actually create a net loss.
The traditional components of determining proper pricing are costs,
market demand, and competition. Each of these must be compared with the
m
firm's objective in entering the foreign market. An analysis of each component
c
from an export perspective may result in export prices that oare different from
.
a
domestic prices.
a
costs that are typically borne by the importer.
n
additional costs can addy
currency fluctuation transaction costs and value-added taxes (VATs). These
SMarket Objectives
Foreign
An important aspect of a company's pricing analysis is determining
market objectives. For example, is the company attempting to penetrate a new
market, looking for long-term market growth, or looking for an outlet for surplus
production or outmoded products? Many firms view the foreign market as a
secondary market and consequently have lower expectations regarding market
share and sales volume. This naturally affects pricing decisions.
Marketing and pricing objectives may be general or tailored to particular foreign
markets. For example, marketing objectives for sales to a developing nation
where per capita income may be one tenth of that in the United States are
necessarily different from the objectives for Europe or Japan.
Costs
The computation of the actual cost of producing a product and bringing it
to market is the core element in determining if exporting is financially viable.
Many new exporters calculate their export price by the cost-plus method. In the
cost-plus method of calculation, the exporter starts with the domestic
manufacturing cost and adds administration, research and development,
overhead, freight forwarding, distributor margins, customs charges, and profit.
The effect of this pricing approach may be that the export price escalates
m
into an uncompetitive range. It clearly shows that if an export product has the
o
same ex-factory price as the domestic product; its final consumer price is
c
.
considerably higher once exporting costs are included.
a
m
Marginal cost pricing is a more competitive method of pricing a product
a the direct, out-of-pocket expenses of
nfor export as a floor beneath which prices cannot
for market entry. This method considers
y
producing and selling products
d a loss. For example, additional costs may occur due to
tu for the export market that accommodates different sizes,
be set without incurring
product modification
Ssystems, or labels. On the other hand, costs may decrease if the export
electrical
products are stripped-down versions or made without increasing the fixed costs
of domestic production.
Other costs should be assessed for domestic and export products
according to how much benefit each product receives from such expenditures.
Additional costs often associated with export sales include:
After the actual cost of the export product has been calculated, the
exporter should formulate an approximate consumer price for the foreign
market.
m
Sample Cost-Plus Calculation of Product Cost
c o
Domestic Export
.
Sale Sale
Factory price a $7.50 $7.50
m
asubtotal
Domestic freight .70 .70
yn
8.20 8.20
d
Export documentation .50
t u subtotal 8.70
S
Ocean freight and insurance 1.20
subtotal 9.90
Import duty (12 percent of landed
1.19
cost)
subtotal 11.09
Wholesaler markup (15 percent) 1.23
subtotal 9.43
Importer/distributor markup 2.44
subtotal 13.53
Retail markup (50 percent) 4.72 6.77
Final consumer price $14.15 $20.30
Market Demand
For most consumer goods, per capita income is a good gauge of a
market's ability to pay. Some products may create such a strong demand such as
popular goods like Levis, that even low per capita income will not affect their
selling price. Simplifying the product to reduce its selling price may be an
answer for the exporter to most lower per capita income markets. The firm must
also keep in mind that currency fluctuations may alter the affordability of its
goods. Thus, pricing should try to accommodate wild changes in the U.S. and/or
m
o
foreign currency. The firm should anticipate the type of potential customers. If
c
. if the average per capita
the firm's primary customers in a developing country are expatriates or belong to
a
the upper class, a higher price might be feasible even
income is low.
m
a
nfew companies are free to set prices without
Competition
y
In the domestic market,
carefully evaluatingd
tu
their competitors' pricing policies. This situation is true in
exporting, and is further complicated by the need to evaluate the competition's
pricesSin each potential export market.
If there are many competitors within the foreign market, the exporter
may have little choice but to match the market price or even under price the
product or service in order to establish a market share. On the other hand, if the
product or service is new to a particular foreign market, it may actually be
possible to set a higher price than in the domestic market.
Pricing Summary
In summary, here are the key points to remember when determining your
product's price:
. c
Quotations and Pro Forma Invoices
a
m
a
Many export transactions, particularly initial export transactions, begin
t u
quotation is prepared
S A quotation describes the product, states a price for it, sets the time of
shipment, and specifies the terms of the sale and terms of the payment. Since the
foreign buyer may not be familiar with the product, the description of it in an
overseas quotation usually must be more detailed than in a domestic quotation.
The description should include the following 15 points:
m
15. Currency of sale.
a
yn a pro forma invoice should include two
Pro forma invoices are not used for payment purposes. In addition to the
another thatt
u
statements. One that
S gives the country of origin of the goods. The invoice should also be
clearly marked "pro forma invoice."
Pro forma invoices are models that the buyer uses when applying for an
import license, opening a letter of credit or arranging for funds. In fact, it is a
good practice to include a pro forma invoice with any international quotation,
regardless of whether it has been requested or not. When final commercial
invoices are being prepared prior to shipment, it is advisable to check with the
U.S. Department of Commerce or another reliable source for any special
invoicing requirements that may be required by the importing country.
If a specific price is agreed upon or guaranteed by the exporter, the
precise period during which the offer remains valid should be specified.
Additionally, it is very important that price quotations state explicitly that they
are subject to change without notice.
International Sales Agreements:
Terms of Sale
In any sales agreement, it is important that there is a common
understanding of the delivery terms since confusion over their meaning can
result in a lost sale or a loss on a sale. The terms in international business
transactions often sound similar to those used in domestic business, but they
frequently have very different meanings. For this reason, the exporter must
m
know the terms before preparing a quotation or a pro forma invoice.
c o
.
The following are a few of the more frequently used terms in international trade:
a
m
CIF (cost, insurance, freight) to a named overseas port where the seller
a(including insurance), all transportation, and
nto the point of debarkation from the vessel. (Used
quotes a price for the goods
y
miscellaneous charges
dshipments.)
uand freight) to a named overseas port where the seller quotes
only for ocean
CFRt(cost
S
a price for the goods that includes the cost of transportation to the named
point of debarkation. The the buyer covers the cost of insurance. (Used
only for ocean shipments.)
CPT (carriage paid to) and CIP (carriage and insurance paid to) a
named place of destination. These terms are used in place of CFR and
CIF, respectively, for all modes of transportation, including intermodal.
EXW (ex works) at a named point of origin (e.g., ex factory, ex mill, ex
warehouse)where the price quoted applies only at the point of origin. The
seller agrees to place the goods at the buyer's disposal at the specified
place within the fixed time period. All other charges are put on the
buyer's account.
FAS (free alongside ship) at a named port of export where the seller
quotes a price for the goods that includes the charge for delivery of the
goods alongside a vessel at the port. The seller handles the cost of
wharfage, while the buyer is accountable for the costs of loading, ocean
transportation, and insurance.
FCA (free carrier) at a named place. This term replaces the former
"FOB named inland port" to designate the seller's responsibility for
handing over the goods to a named carrier at the named shipping point. It
may also be used for multimodal transport, container stations, or any
mode of transport, including air.
m
c
FOB (free on board) at a named port of export whereo the seller quotes
the buyer a price that covers all costs up to.and including the loading of
a
m
goods aboard a vessel.
Charter Terms:
Free In is a n
a
y for the cost of loading goods onto the vessel.
o pricing term that indicates that the charterer of a
d
vessel is responsible
ou
t of the vessel is responsible for the cost of loading and unloading
Free In and Out is a pricing term that indicates that the charterer
S
goods from the vessel.
o Free Out is a pricing term that indicates that the quoted prices
include the cost of unloading goods from the vessel.
m
will eliminate the risk of exchange rate fluctuations and problems with currency
conversion.
c o
. AGREEMENT
a
FORMAT OF INTERNATIONAL SALES
m
Business Name ___________________________________________________
a
Contact Person ____________________________________________________
y n
Address ___________________________________________ City __________
d
State/Province _______________________________ Country ______________
t u
Postal Code ______________
SNumber _________________________________
Telephone
E-mail Address _________________________________
m
buyer shall conduct its business as an independent contractor and all persons
c
employed in such business shall be employees of the buyer. o
. motto ―See, Touch, Listen
a
5 Buyer may not use the name The Story Teller, the
a
or any form thereof. The buyer recognizes
n
y rights of the manufacturer.
intellectual property rights and will take no steps to register them or otherwise
d
interfere with the ownership
u
tcards (Visa, MasterCard, and Discover) are
6 All orders must be prepaid in US dollars. Money orders, cashiers check, direct
wire orS credit
acceptable forms of payment.
7 Prices for the products sold to the vendee shall be the manufacturer wholesale
price in effect at the time of shipment. The manufacturer may change the
wholesale prices in whole or part, with ninety-(90) days notice to the vendee.
8 Product is shipped within five days after payment is received. If a longer time
is required, manufacturer will notify buyer.
9 The manufacturer shall not be liable to the buyer or any of the buyer‘s
customers for any loss, damage, detention or delay resulting from fires, strikes,
lockouts, insurrections or riots, civil or military authority, acts of God, lack of
timely instructions from or information from the buyer, war, act of government,
unusually severe weather, default of any other manufacturer or supplier or
subcontractor, freight embargoes, quarantine, transportation contingencies, or
any other cause beyond its reasonable control.
10 Freight carrier handling charges, procurement of documents, duties, customs
and taxes of every nature, air or ocean freight charges and
insurance are paid by buyer. Shipments are sent freight prepaid unless
arrangements are made otherwise.
11 Product returns are accepted within 30 days of shipment and are subject to a
10% restocking fee (based on retail dollars). The buyer will be responsible for
m
all return freight handling charges, procurement of documents, duties, customs
and taxes of every nature, air or ocean freight charges ando
. c insurance are paid by
a
buyer.
y n
(ryan@thestoryteller.com) list of items to be returned and reason for
your request.
d
t u
14 This agreement shall be read and construed and have effect according to the
S
laws of the State of Utah, US. Should any questions or disputes arise as to the
true intent and meaning of, or the performance or breach of any provision under
this agreement, every such dispute shall be, if not settled amicably by mutual
consultation, forthwith settled by arbitration. This arbitration shall be in
accordance with the UNICITRAL Rules of Arbitration as at present in force. In
the event the parties cannot agree on a mutually acceptable arbitrator within
thirty (30) days of the delivery of notice of arbitration as provided under said
rules, then the International Chamber of Commerce, Paris, France, shall be the
appointing authority only for the purposes of selecting the arbitrator. The
number of arbitrators shall be one (1) and the place of arbitration shall be Salt
Lake City, Utah, UT. The language used in the arbitration shall be English.
Judgment may be entered upon the award of the arbitrator and will be
enforceable in accordance with applicable law against the liable party.
15 Any award by the arbitrator or judgement of any court, as the case may be,
shall include payment and/or reimbursement of the prevailing party‘s costs and
expenses incurred in connection with any dispute, controversy, claim or breach,
including reasonable attorney‘s fee and costs of enforcing the award of the
arbitrator.
16 The authentic text of this agreement shall be English.
This agreement shall become valid and binding when signed and
received by The Story Teller, PO Box 921, Salem, UT 84653
m
__________________________________________
c o ______________
.
a
__________________________________________
m
Authorized Buyer Signature Manufacturer Authorized Signature
a
yn
Date
d
u
Agent or Distributors:
t and Distributor arrangements are both examples of different
S Agency
methods of overseas market entry. For both Agency and Distributor
Agreements, the basic parties involved are usually:
m
overseas market. The contract of sale is between the Principal and the
Distributor. There is no contractual relationship betweeno
. c the Principal and the
a
Distributor‘s customers.
m
Advantages and Disadvantages between an Agent and a Distributor:
1. Contracts of Sale
AGENCY: In an Agency n
a
ytherefore must undertake separate „operations‟ for
arrangement, the Principal will be dealing with
d
„multiple accounts‟ and
u
t the Principal must:
each contract of sale, for example:
S
For each account
Take the commercial risk (credit insurance)
Separate invoicing, accounting and administration
Separate distribution and shipping arrangements
Handling smaller order quantities
The disadvantage here is that all these operations will incur additional costs,
(distribution, invoicing, accounting, administration, debt collection) resulting in
increased prices or reduced profits).
DISTRIBUTOR: In a Distributor arrangement, the Principal only deals with
one account i.e. that of the Distributor. The Distributor takes the commercial
risk of multiple accounts.
The advantage here compared to Agency, is that:
Commercial risk is only with one account
Larger order quantities and bulk distribution
(Reduced costs)
2. Market Penetration
AGENCY: Because the Principal is contracting directly with the customers in
the market, the Principal has a presence and reputation in the market.
The Advantage of this is:
m
Future product launches into the market are easier if the ‗company‘ is known.
Market trends, customer knowledge and end-user o
. c requirements can be
a
monitored and responded to if there is a direct relationship.
m
DISTRIBUTOR: The Principal has no control over which customers the
Distributor sells to.
a
y n
The company name of the Principal may not be marketed and Promoted in the
overseas market.
d
t
Market trends u can not easily be directly monitored and reacted to by the
S
Principal.
3. Terms and Conditions
AGENTS
Terms and Conditions of Agency Agreements are governed by EU law
(Commercial Agents Regulations 1993. These Regulations cover primarily the
Rights and Duties of Principal and Agent and are automatically incorporated
into any Agency contract.
For example:
Duties of Agent:
To perform duties in person (and not delegate)
Carry out work with ordinary skill and diligence
Not accept a bribe or secret profits
Must be no conflict of interest between Agent and Principal
To obtain the best price from customers that is reasonably obtainable.
Duties of Principal:
Payment of Commission
Indemnify the Agent for any expenses incurred.
Rights of Agent:
Termination:
There are mandatory Notice Periods:
1 month during 1st year
m
2 months during 2nd year
c o
.
a
3 months during 3rd and subsequent years
m
Compensation:
a
On termination the Principal must pay:
y
Compensation (calculated on n the loss suffered as a result of the loss of the
Agency.
d
t u
Indemnity (capped at 1 years commission)
S
DISTRIBUTOR
The terms and conditions of a DISTRIBUTOR Agreement are essentially
Contractual.
The terms and conditions of the Agreement are essentially based on the formal
agreement between the Principal and Agent. However, there are restrictions
imposed by both UK and EU law:
Price Fixing Agreements:
Price fixing is almost always inexcusable. Minimum selling prices are
regarded as „price fixing‟. However, Maximum ‗Recommended‘ Selling Prices
are not in breach are not in breach of EU law but they are unenforceable because
they do not affect competition.
Advantages: Agency – more price control (must obtain reasonable price) the
distributor could kill the market by overpricing the product
Disadvantages: Agency – more regulations imposed:
Commission payment termination
4. Order Quantities
AGENCY: The volume of orders which the agent obtains is dependent on
his/her ability to sell to contacts in the market.
DISTRIBUTOR: The contract between the Principal and Distributor often
stipulates a minimum order quantity which the Distributor must take within a
m
specified time period. The Principal is guaranteed a volume of sales provided
c
the Distributor complies with the contract but is otherwiseo in breach of contract
.
a
and can be sued for damages.
m
DISADVANTAGES TO BOTH AGENTS AND DISTRIBUTORS
a
a) Both Agents and Distributors usually require some kind of Exclusivity before
they commit to representing n
y rights over a particular territory for a particular
their Principal. This means that the Agent or
d
Distributor is given exclusive
product. The u
tsell those products in that territory.
Principal agrees that no other Agent or Distributor will be
S
appointed to
The Disadvantage here is that the Principal is limiting his/her market entry
potential. Penetration into the market is dependent upon the ability and the
results of the Agent/Distributor. It could be that there are other opportunities in
the market which the Agent /Distributor are not accessing.
b) Competing Products
It is not unheard of for a Representative to request exclusivity with a view to
keeping the Principal out of the market, because they are successfully selling
competitors products.
ADVANTAGES TO BOTH AGENTS AND DISTRIBUTORS
a) Both Agents and Distributors offer the Principal a Presence in the overseas
market. This gives the advantage to the Principal of:
Local presence abroad
Language and cultural knowledge
Quicker service delivery (trouble shooting and servicing)
b) Complementary Products
Both Agents and Distributors often have more than one Principal. It is
important for the Principal to know who else the Agents/Distributor is
representing, particularly if exclusivity is granted. An Agent or Distributor who
represents a few Principles, who offer complementary products, can offer:
m
A comprehensive product range which enables products to be sold on the
c o of customers and
back of others. The agent will have an established database
.
a
contacts to whom the Principal‘s products can be sold.
m
Laws Applicable to International Business
Domestic Laws
a
y
Foreign Laws of Host Countryn
International Law
d
t u
Executive Agreements
S
Treaties
Customary International (Common) Law
―Private Law‖ law of the K (Contract)
ISSUES INVOLVED IN INTERNATIONAL BUSINESS LAW
TRANSNATIONAL SALES
Choice-of-Law
Each court uses its own conflicts rules.
Federal courts sitting in diversity apply state rules.
Most courts enforce choice-of-law clause, unless it violates a significant public
policy.
Transfer Pricing: Prices which entities under common control charge each
other for goods and services.
Tax Treaties:
Increases coordination of tax authorities, fight tax evasion
Try to eliminate overlapping taxation (integrate systems)
One country may forgo taxing a type of income or transaction and allow the
other country to tax it.
International Litigation
All international contracts should have Choice-of-forum clause and Choice-of-
law clause.
m
ARBITRATION
c o
.following clauses
a
An International contract should contain some of the
m
Agreement to submit some or all questions to arbitration
Place of arbitration
a
Must be signatory state
y n
d
Should have history of enforcing arbitration awards
Issues must beu
t arbitrators
arbitral in the place
MethodS of appointing
Language in which arbitration takes place
Choice of law
PUBLIC INTERNATIONAL LAW
International Court of Justice applies:
International Conventions (treaties)
International Custom (general practice accepted as law)
General Principles of Law Civilized Nations Recognize
Judicial Decisions/School Writing (precedent not binding)
Customary International Law
International Custom (2 elements):
General Practice (material number of states)
Acceptance as Law (bound to apply, not just preferred)
a
Most-Favored Nation: all members enjoy same benefits
Country must adopt all GATT n
y between members):
agreements to be MFN
d
Exceptions (no trade restrictions
u
t (unified duties to non-members)-EU
Free-Trade Zones (individual duties to non-members)-NAFTA
S
Customs Unions
Article II: Limits on Tariffs
Members use rates in tariff schedules for all members
Exceptions (Arts. VI, XIX,):
Anti-Dumping (selling materially < FMV)
Countervailing Duties (to counteract export subsidies)
Escape Provision (temporary relief for unforeseen developments + serious injury
to domestic producers)
Article III: National Treatment
Laws/regs must treat imports same as domestic goods
Article XI: No Import Restrictions Other Than Tariffs
Exception: quotas to maintain hard currency reserves
Harmful products may generally be banned (but banning a certain process—e.g.,
way of fishing—is more suspect)
Article XX: Conservation Laws Not Prohibited:
Necessary to protect human, animal, plant life or health
Relating to conservation of exhaustible natural resources
Chapeau: Not arbitrary/unjustifiable discrimination or disguised restriction on
international trade. Shrimp-Turtle Case
m
World Trade Organization (WTO)
c o
Dispute Settlement Body (DSB): if conciliation .
a
and mediation fail, DSB may
a within 60 days
Appellate Body: hears appeals n
y Investment Measures (TRIMS):
of law/legal interpretation
d
Agreement on Trade-Related
u
tenterprise from importing goods
Forbids rules on investment in a country that:
S
Prevent the
Require it to buy local goods
Require it to export a certain amount of goods
General Agreement on Trade in Services (GATS)
Agreement on Trade-Related Aspects of I.P. Rights (TRIPS)
International Monetary Fund (IMF)
Objectives:
Facilitate foreign exchange among members (almost all U.N. members are IMF
members)
Floating rate is used for exchange
Keep countries from de-valuing their currency to gain economic advantage
(leads to race to the bottom)
Restrict national exchange controls
Exchange Controls: government restricts its citizens from exchanging its
currency for foreign currency (central bank rations foreign currency)
Exception: country may maintain and adapt existing controls to remedy
balance-of-payment problems
m
Special Drawing Rights (SDR): IMF members may draw
c ocurrency from other
.
a
members in order to temporarily equalize balance-of-payments
m
If member violates rules on exchange controls, its SDRs may be eliminated.
a
AGENCY & DISTRIBUTORSHIP
y n AGREEMENTS
Agents:
dby manufacturer, especially on price
t u
More control exerted
AgentSnever takes title to goods
Manufacturer retains risk of non-payment
Agent makes $ as commission on sales
Agent often has authority to bind principal in K
Fewer antitrust problems for exclusivity
Many countries have protective legislation for agents
May created a PE for tax purposes
Distributors:
Manufacturer has less control, especially on price
Distributor takes title to the goods (and risk of loss)
Distributor has risk of non-payment
Distributor makes $ on profit (upside + downside risk)
Distributor may not bind the principal in contract
Exclusivity may raise antitrust problems
Usually no protective legislation for distributors
Probably will not create a PE
Issues in Agency/Distributor Agreements:
―Exclusive‖ (may manufacturer enter the market itself?)
Survival of Confidentiality/Non-Compete Clause
Termination of Agreement
U.S. Law: generally does not protect agents/distributors.
m
―Good Faith‖ may be required in terminating agreement.
c o
.
a
Notice of Termination (mandatory rule):
m
Term contract converts to Indefinite Period contract if continued
a
Indefinite Period contract (tacks prior term if continued):
1 mo. for 1st year
y n
d
2 mo. if 2d year commenced
3 mo. if 3d or u
t4mo/4yr, 5mo/5yr, 6mo/6yr notice
subsequent year commenced
S
May require
Principal‘s notice period may not be less than agent‘s
Damages or Indemnity (mandatory rule):
Up to 1 year‘s (5-yr ave) compensation
Exceptions:
Agent terminates (unless due to illness, age, death)
Breach of K (agent does not meet sales quota)
Term expires (decision not to renew ≠ damages)
Non-Compete: limited to 2 years after termination.
Choice-of-Forum or Law: cannot avoid Directive Ingmar or ―mandatory terms‖
Rome Convention by choice-of-law or -forum clause
Mandatory terms may be ―non-arbitral‖ for NY Conv
Exclusivity
3 Types of Restraints:
Territorial Exclusivity: exclusive right to sell in territory
Territorial Restrictions: may not sell outside territory
Non-Compete: may not sell competing goods
QUESTIONS
1. Explain the necessity of International Business law and trace its history.
m
2. What is the Letter of Credit and explain and its different types.
3. What are the payment and risks involved in o
. c L/C‘s.? What factors
a
influence payment terms.
a
5. What are the rights and duties
y n
international business?
d
6. What is the difference between agent and an distributor under
t u
International Business Laws.
7. S
Write short notes on
1. GATT
2. MNE
3. Letter of Credit
8. What is the relevance of WTO in International Business?
References:
m
10. http://www.itds.treas.gov/index.html
a
11. http://www.export.gov/index.asp
y n
12. http://www.germanlawjournal.com/pdf/Vol07No09/PDF_Vol_07
13.u
d
_No_09_785-792_Developments_Wolf.pdf
t http://www.myownbusiness.org/mail.php
http://www.saj.oas.org/lcp/bourely.doc
S14.
15. http://www.compuadds.com/index.asp
Unit- II
The world trade Organization (WTO) the successor to the General Agreement
on Tariffs and Trade GATT – established in 1984) came into being on 1 January
1995, is the only international organization dealing with the rules of trade
between nations. And its heart is the WTO agreements, negotiated and signed by
the bulk of the worlds trading nations and ratified in their parliaments. The goal
m
is to help producers of goods and services, exporters and importers conduct their
business.
c o
. influenced by the WTO
a
The global business environment is very significantly
a
example, India has had to substantially
n
y firms‘ have to face an increasing competition
complete removal of quantitative imports restrictions. The Liberlisation of
S
competition
new opportunities for Indian firms as the foreign markers become more open for
exports and investments. The liberalization also enables Indian firms to seek
foreign equity participation and foreign technology. This could help them to
expand their business or improve competitiveness. Further the Liberlisation
facilitates global sourcing by Indian firm‘s sop that they can improve their
competitiveness. Indian suppliers can benefit from global sourcing by foreign
firms.
Firms will have to be efficient and dynamic to survive the global
competition. Inefficient firms may go out of business.
GATT
The general Agreement on Tariffs and Trade (GATT), the predecessor of
WTO was born in 1984 as results of the international desire to liberalise trade.
The establishment of an international Trade Organisation (ITO) had also
been recommended by the Bretton Woods conference of 1944 which had
recommended the IMF and World Bank. Although the IMF and World were
established in 1946, because of objective that its enforcement provisions would
interfere with the autonomy of domestic policy making, the ITO charter was
never ratified. Instead the GATT, which had been drawn up only as an interim
m
agreement to fill the gap u until the ITO charter was ratified, became the
c ointernational trading
framework for international trading system since 1948. The
system since 1948was, at least in principle, guided.by the rules and procedures
a
mon the basis of their willingness to
agreed by the signatories to the GATT which as an agreement signed by the
a
contracting nations which were admitted
accept the GATT disciplines.n
The GATT wasy
d transformed into a world Trade Organisation (WTO)
a
For the realization of its objective,
principles:
y n
d
1. Non – discrimination: The principle of non discrimination requires
thatu
t in the conduct of international trade. To ensure non
no member country shall discriminate between the members of
S GATT
discrimination the members of GATT agree to apply the principle of
most favoured nation (MFN) to all import and export duties. This
means that ―each nation shall be treated as the most favoured nation.‖
As far as quantitative restrictions are permitted, they too, are to be
administered without favor.
However, certain exceptions to this principle are allowed. For
instance, GATT des not prohibit economic integration such as free
trade areas or customs union, provided the purpose of such
integration is ―to facilitate trade between the constituent territories
and not to raise barriers to the trade of trade of other parties,‖ The
GATT also permits the members to adopt measures to counter
dumping and export subsidies. However the application of such
measures shall be limited to the offending countries.
2. Prohibition of quantitative restrictions. GATT rules seek to
prohibit
quantitative restrictions as far as possible and limit restrictions on
trade to the less rigid tariffs. However, certain exceptions to this
prohibition are granted to countries confronted with balance of
payments difficulties and to developing countries. Further, import
m
restrictions were allowed to apply to agricultural and fishery products
c
if domestic production of these articles was osubject to equally
.
a
restrictive production or marketing controls.
a
sought to resolve disagreements
n
more than y
Rounds took several years. The Uruguay round, the latest one, took
m
negotiations, or rounds, held under GATT. The first round dealt mainly with
tariff reductions but later negotiations included othero
c areas such as anti-
. the 1986 -1994 Uruguay
a
dumping and non tariff measures. The last round
m
Round – led to the creating of WTO and provided for global economic and
d
forum for continuing consultations.
continuing hard u
tthe conference table and compromised‖. GATT could achieve
feeling, reprisals, and even diplomatic rupture have been
S
brought to
considerable trade liberalization. There were, of course several exceptions.
Agricultural trade was clearly an exception to the liberalization. Far from
becoming freer, trade in agriculture became progressively more distorted by the
support give to farmers (Which took the form of severe barriers to imports and
subsidies to exports) in the industrial nations.
Similarly, another exception was textiles. Trade in textiles was restricted
by the Multifibre Arrangement (MFA). Under the MFA imports of textile items
to a number of developed countries were restricted by quotas.
Besides agriculture and textiles, two exceptions to the general trend of
trade liberalization have been trade of developing countries and economic
integration. Developing countries with balance of payments problems have been
generally exempted form the liberalization. Even the Uruguay Round has
granted such exemptions to developing countries.
Although the picture of trade liberalization has to be qualified with such
exceptions, the GATT achieved very commendable trade liberalization. The
average level of tariffs on manufactured products in industrial countries was
brought down from about 40 percent in 1947 to nearly three per cent after the
Uruguay
Round.
m
Indeed the period of 1950 – 1973 is conspicuous by the splendid results
c
of progressive trade liberalization. In 275 years since o1720, this period
.in output and international
a
witnessed the highest average annual growth rates
m
trade. These rates were substantially higher than for any other period. Indeed,
m 1986.
the GATT is popularly known because it was launched in Punta del Este in
a
Uruguay, a developing country, in September
n
y countries, the Uruguay Round could not be
Because of the complexities of the issues involved and the conflict of
d
interests among the participating
concluded inu
tdragged on, Arther Dunkel, the then Director General of GATT,
December 1990 as was originally scheduled. When the
S
negotiations
presented a Draft Act embodying what he thought was the result of the Uruguay
Round. This came to be popularly known as the Dunkel Draft. This was
replaced b an enlarged and modified final text which was approved by the
delegations from the member countries of the GATT on 15th December 1993.
This Final Act was signed by ministers of 125 governments on 15 th April 1994.
The results of the Uruguay Round are to be implemented within ten years since
1995. Different time periods are given for effecting the different agreements.
The first six Rounds of MTNs concentrated almost exclusively on
reducing tariffs; while the Seventh Round (Tokyo Round – 1973 – 1979) moved
on to tackle non tariff barriers (NTBs). The UR sought to broaden the scope of
MTNs far wider by including new areas such as:
Trade in services
Trade related aspects of intellectual property (TRIPs)
Trade related investment measures (TRIMs)
Because of the inclusion of these new aspects in the GATT negotiations,
the developing countries had serious apprehensions, about outcome of the
Uruguay Round.
The Uruguay Round took up three basic subjects for discussion:
m
1. Reducing specific trade barriers and improving marker access.
2. Strengthening GATT disciplines.
c o
. trade related aspects
a
3. Problems of liberalization of trade in services,
m
of intellectual property rights (TRIPs) and trade related investment
measures (TRIMs)
The most outstandingn
a
yto above in the MTNs of GATT. The traditional
feature of the UR was the inclusion of the subjects
d
in the 3 rd item referred
u
t goods to services, technology, investment and information.
concerns of the GATT were limited to international trade in goods. The UR
S
went much beyond
Some of the important features of the Uruguay Round Agreement are
given below.
WORLD TRADE ORGANISATION
Following the UR Agreement, GATT was converted from a provisional
agreement into a formal international organization called World Trade
Organisation (WTO) with effect from 1 January, 1995. WTO now serves as a
single institutional framework encompassing GATT and all the results of the
Uruguay Round. It is directed by a Ministerial conference that will meet at least
once every two years and its regular business is overseen by a General council.
The WTO Secretariat is based in Geneva, Switzerland.
The membership of the WTO increased from 128 in July, 1995 to 144
countries
as of 1 January, 2002 and about two dozen more nations were negotiating for the
membership. It is interesting to not that the People Republic of China, which
was one of the original signatories of the GATT quit it in the late 1940s
following the assumption of power by the communist party, but got admitted to
the WTO, after a prolonged negotiations, with effect from 1 January, 2002. The
WTO members now potential of the WTO in bringing about an orderly
development of the international trade.
m
GATT AND WTO
c o
The old GATT system allowed, under.what was known as the
a
mhad accepted by being a signatory to
‗grandfather clause‘, existing domestic legislation to continue even if it violated
a
a GATT agreement that a member country
GATT. The WTO, specially n
ythe coming into effect of WTO, may be described as
rules this out.
d
This situation, after
t u
the GATT is dead, long live the GATT.
mand
co
GATT was Adhoc and provisional WTO its
agreement are permanent
.
a
m
GATT had contracting parties WTO has members
a
yn
d
GATT system allowed existing domestic WTO does not permit
u this
t to continue even if it violated
Sa GATT agreement
Legislation
In Short, the WTO is GATT plus a lot more. GATT (the institution) was
small and provisional, and not even recognized in law as international
Organisation. GATT (the agreement) has been amended and incorporated into
the new WTO Agreement. GATT deals only with trade in goods. The WTO
Agreements now cover services and intellectual property as well.
The WTO is a more powerful body with enlarged functions than the
GATT and is envisaged to play a major role in the world economic affairs. To
become a member of the WTO, a country must completely accept the results of
the Uruguay Round.
Functions
The WTO‘s overriding objective is to help trade flow smoothly, freely,
fairly and predictably.
It does this by:
1. Administering the WTO trade agreements
m
c
2. Providing the forum for negotiations among its omembers concerning
. dealt with under the
a
their multilateral trade relations in matters
m
Agreement.
a
3. Administering the mechanism for settling trade disputes between the
y
member countries. n
dtechnical assistance and training for developing countries
4. Monitoring national trade policies.
u
t operating with other international organizations like the IMF and
5. Providing
S
6. Co
IBRD and its affiliated agencies with a view to achieving greater
coherence in global economic policy making.
WTO Principles
The WTO agreements have three main objectives:
To help trade flow as freely as possible.
To achieve further liberalization gradually through negotiation.
To set up an impartial means of settling disputes.
A number of simple, fundamental principles run throughout all the WTO
agreements. They are the foundation of the multilateral trading system. They
include:
Non – discrimination (―most favoured-nation‖ treatment and ―national‖
treatment)
Freer trade, predictable policies, encouraging competition.
Extra provisions for less developed countries.
These are described under the objectives of GATT above.
Organizational Structure
m
Decisions in the WTO are made by the entire membership-this is typically by
d
Below this is the General
delegation in u
whichS
t Geneva, but sometimes officials sent from members‘ capitals)
meets several times a year in the Geneva headquarters. The General
Council also meets as the Trade Policy Review Body and the Dispute Settlement
Body.
At the next level, the Goods Council, Services Council and Intellectual Property
(TRIPS) Council report to the General Council.
Numerous specialized committees, working groups and working parties deal
with the individual agreements and other areas such as the environment,
development, membership applications and regional trade agreements.
All WTO members may participate in all councils, committees, etc., except
Appellate Body, Dispute Settlement panels, Textiles Monitoring Body, and
plurilateral committees.
The WTO Agreements – A Bird‟s Eye View
The WTO endeavors to ensure that trade is as fair as possible and as free as
practicable by negotiating rules and abiding by them. The WTO‘s rules – the
agreements are the result of negotiations between the members. The current sets
were the outcome of the 1986 -1994 Uruguay Round negotiations which
included a major revision of the original General Agreement on Tariffs and
Trade (GATT).
GATT is now the WTO‘s principle rule-book for trade in goods. The Uruguay
m
Rounds also created new rules for dealing with trade in services, relevant aspect
of intellectual property, dispute settlement and tradeo
c policy reviews. The
complete set runs to some 30,000 pages consisting.of about 30 agreements and
a
m
separate commitments (called schedules) made by individual members in
a
specific areas such as lower customs duty rates and services market opening.
Through these agreements, WTOn
yrights and their obligations. Each country receives
members operate a non-discriminatory trading
d
system that spells to their
guarantees thatu
other S
t its exports will be treated fairly and consistently in markets of
countries. Each promises to do the same for imports into its own market.
The System also gives developing countries some flexibility in implementing
their commitments.
Goods: Trade in goods was the concentration of GATT until the Uruguay
Round negotiations. From 1947 to 1994, GATT was the forum for negotiating
lower customs duty rates and other trade barriers; the text of the General
Agreement spelt out important rules, particularly non discrimination.
Since 1995, the updated GATT has become the WTO‘s umbrella agreement for
trade in goods. It has annexes dealing with specific sectors such as agriculture
and textiles and with specific issues such as state trading, product standards,
subsidies and actions taken against dumping.
Services: Banks, insurance firms, telecommunications companies, tour
operations, hotel chains and transport companies looking to do business abroad
can now enjoy the same principles of freer and fairer trade that originally only
applied to trade in goods.
These principles appear in the new General Agreement on Trade in Services
(GATS). WTO members have also made individual commitments under GATS
stating which of their services sectors they are willing to open to foreign
competition, and how open these markets are
Intellectual property: The WTO‘s intellectual property agreement amounts to
m
rules for trade and investment in ideas and creativity. The rules state how
copyrights, patents, trade markers, geographical names
c oused to identify
. designs and undisclosed
a
products, industrial designs, integrated circuit layout
m
information such as trade secrete – ―intellectual property‖ – should be protected
when trade is involved.
a
n
the Dispute Settlementy
Dispute settlement: The WTO‘s procedure for resolving trade quarrels under
m
longer time periods to implement agreements and commitments, measures to
increase their trading opportunities and support to o
c help them build the
. and implement technical
a
infrastructure for WTO work, handle disputes,
a
The 2001 Ministerial conference in Doha
n
the new negotiations they
for a wide range of issues concerning developing countries. Some people call
m
database of official documents and other materials. Efforts are also being made
c oin Geneva.
to help countries that do not have permanent representatives
.
a
Salient Features of UR Agreement
m
a
Liberalization of Trade in Manufactures
n
y out of non tariff barriers.
Liberlisation of trade in manufactures is sought to be achieved mostly by
d
reduction of tariffs and phasing
Tariff Barriersu
t
S
The major Liberlisation in respect of trade in manufacturing goods, regarding
tariffs are
1. Expansion of tariff bindings
2. Reduction in the tariff rates
3. Expansion of duty free access
The UR agreement envisages substantial tariff reductions in both
industrial and developing countries.
The main liberalization by industrial countries include the expansions of tariff
bindings (i.e., commitment not to exceed a particular level of tariff) to cover 99
per cent of imports, the expansion of duty free access from 20 to 43 per cent of
imports, and the reduction of trade weighted average tariff by 40 per cent, from
6.2 to 3.7 per cent.
However, the gain to developing countries from the tariff cuts by industrial
countries is less impressive. The reduction in the average tariffs on their exports
to industrial markets is 30 per cent and the labour intensive manufactures
(textiles, clothi9ng, leather goods) and certain processed primary products (fish
products) which are regarded as sensitive have been below average tariff cuts.
In industrial countries, tariffs will be eliminated in several sectors like steel,
pharmaceuticals and wood and wood products.
m
c o of their imports
Developing countries agreed to bind their tariffs on 61 percent
of industrial products, compared with 13 per cent.
a
before the UR Round. They
m
also offered to reduce their trade weighted average bound tariff on imports from
a
industrial countries by 28 percent, from 15 to 11 per cent. The offers of tariff
n
over a third of the worky
reduction on manufactures by developing countries are estimated to amount to
S
achievement.
India has bound tariffs at 40 per cent (where they were above 40 per cent in
1993 – 1994) on industrial raw materials, components and capital goods and at
25 per cent in other cases. After the UR Agreement comes into force, about 68
per cent of India‘s tariff lines will be bound (Compared to five per cent earlier).
In comparison, many developing countries in Asia and Latin America have
bound between 90 and 100 per cent of their tariff lines at levels comparable to,
or lower than, India‘s bindings.
Non – tariff Barriers
In the area of NTBs, the Agreements to abolish voluntary export
restraints (VERs) and to phase out the Multifibre Arrangements (MFA) are
regarded as landmark achievements for developing countries.
The phasing out of the existing VERs within four years and the MFA
within ten years would scale back the coverage of NTBs on the trade of
developing countries from 18 per cent of their 1992 exports‘. As trade in
derestricted product lines would tend to grow faster than other trade, this
coverage could fall to 4.2 per cent by 2005.
The UR Agreement seeks to phase out the MFA by 2005. According to
some estimates the phasing out of MFA would contribute about 20 per cent of
m
the total welfare gains from the UR. The largest gains will go to the MFA
importers who will be able it import basic clothing and o
c textiles from the more
efficient suppliers in ASEAN, China, South Asian.and other regions. By 2005,
a
m
the total benefits to the European Community, the US and Canada are estimated
a
at $56 billion per year at 1992 prices. Income gains of over $13 billion are
n
y despite the loss of quota rents provided under the
projected for highly competitive exporters such as China, Indonesia, Thailand
d
and South Asian exporters,
MFA. Some u
taccess to industrial country markets unless they are able to increase
less competitive exporters will suffer from the loss of their
S
preferential
their efficiency, any some currently unrestricted importers will lose as the
exports currently diverted toward tem by restrictions elsewhere can flow freely
to the other markets.
Liberlisation of Agriculture Trade
As mentioned earlier, one of the salient features of the UR was the
inclusion, for the first time, of agriculture in the MTN. The exclusion of
agriculture from the previous Rounds and its effective exemption from the
GATT discipline made agriculture a highly protected sector in the developed
countries. The depressing impact of this on world prices prevented efficiently
procures from realizing the benefits of their comparative advantage. Exports
from developing countries suffered a lot.
The important aspects of the UR Agreement on agriculture include
1. Tariffication
2. Tariff binding
3. Tariff cuts
4. Reduction in subsidies and domestic support.
Tariffication and Tariff Cuts
Tariffication means the replacement of existing non tariff restrictions on
trade such as import quotas by such tariffs as would provide substantially the
same level of protection.
m
c
From the first year of the Agreements implementation,o nearly all order
. are to be no higher than
a
protection is to be bound by tariffs, which (in principle)
m
volume of subsidies agricultural exports by at least 21 per cent and the value of
c odeveloping countries
subsidies at least by 36 per cent, the respective figures for
are 14 per cent and 24 per cent. All countries are.bound not to introduce new
a
The UR agreement has broughtm
subsidies.
S
food security
policies, structural adjustment assistance, payment under environmental
programmes and regional assistance programmes are exempted. The non
exempted types of subsidies included in the aggregate measure of support
(AMS) required to be reduced include assistance in the form of production
limiting subsidies and assistance given for growth of agriculture and rural
development like procurement at support prices and subsidies on inputs and
credit. However, even these subsidies are required to be reduced only if their
total amounts as a proportion of the value of agricultural production exceed five
percent in case of developed countries and 10 per cent in case of developing
countries. If the non exempted subsidies are above these limits, they are required
to be reduced by 20 per cent in case of developed countries and by 13.3 per cent
in developing countries by 1999.
According to government of India, India‘s total AMS is negative
(without taking into account exemptions available of input Subsidies to low
income and resource poor Farmers) and there are no reduction commitments.
Nor does India have any minimum market access commitments in agriculture
(the UR Agreement provides for the establishment of minimum access tariff
quotas, at reduced tariff rates, where the access is less than 3 per cent of the
domestic consumption). The minimum access tariff quotas are to be expanded to
five per cent over the implementation period).
m
c o under the public
Assistance for ―food security‖ such as the food subsidy
. extent they confine to the
a
distribution system (PDS) will be exempted to the
m
poor.
Non agricultural Export Subsidies
Countries whose pern
a
y(India‘s per capita Income in 1994 was only $ 310).
capita income is less than $ 1000 us not bound to
d
phase out export subsidies.
However, even u
t the share in the world exports is 3.25 per cent or more in two
such countries will have to phase put export subsidies on
S
products where
consecutive years. This is applicable to India in respect of exports of diamonds.
GATS
The General Agreement on Trade in Services (GATS) which extends
multilateral rules and disciplines to services is regarded as a landmark
achievement of the UR, although it achieved only little in terms of immediate
liberalization.
Because of the special characteristics and the socio-economic and
political implications of certain services, they have been generally subject to
various types of national restrictions. Protective measures include visa
requirements, investment regulations, restions on repatriation, marketing
regulations, restrictions on employment of foreigners, compulsions to use local
facilities, etc. Heavily protected services in different countries include banking
and insurance; transportation; television, radio, film and other forms of
communication; and so on.
The GATS defines services as the supply of a service from the territory
of one member (country) into the territory of any other member; in the territory
of one member to the service consumer of any other member; by a service
supplier of one member, through commercial presence in the territory of any
other member; or by a service suppliers of one member in the territory of any
other member.
m
c o delivery of
In short, the GATS cover four modes of international
.
a
services.
a
2. Commercial presence (provision
y n
representative offices)
t u
4. Movement
S consultant)
While industrial countries have offered market access commitment of
some kind on over half (about 54 per cent) of their service activities, developing
categories. Tourism and travel related services are the only activities in which
substantial number o developing countries made commitments.
The framework of GATS includes basic obligation of all member
countries on international trade in services, including financial services,
telecommunications, transport, audio visual, tourism, and professional services,
as well as movement of workers.
Among the obligations is a most favoured nation (MFN) obligation that
essentially prevents countries from discriminating amount foreign suppliers of
services.
Another obligation is the transparency requirements according to which
each member country shall promptly publish all its relevant laws and regulations
pertaining to services including international agreements on trade in services to
which the member is a signatory. Further, each member shall also respond
promptly to all requests for specific information, by any other member,
pertaining to any aspect of the service covered by the GATS. Each member shall
also establish one or more enquiry points to provide specific information to
other members. However no member needs to provide any confidential
m
information, the disclosure of which would impede law enforcement, or
c
otherwise be contrary to public interest, or which would oprejudice legitimate
commercial interests of particular enterprise, public.or private.
a
mthrough negotiated commitments on
The GATS lays down that increasing participation of developing
a
countries in world trade shall be facilitated
n
ythe liberalization of market access in sectors and
access to technology, improvements in access to distribution channels and
d
information networks and
u
treference to domestic regulation, the Agreement lays down that all
modes of supply of export interest to them.
S With
measures of general application affecting trade in services are administered in a
reasonable, objective and impartial manner. There would be a requirement that
parties establish ways and means for prompt reviews of administrative decisions
relating to the supply of services.
It is recognized that particular pressures on the balance of payments of a
Member in the process of economic development or economic transition may
necessitate the use of restrictions to ensure, inter alia, the maintenance of a level
of financial reserves adequate for the implementation of its programme of
economic development or economic transition.
A member country may, therefore, apply restrictions on international
transfers and payments for current transactions under certain circumstances
envisaged under the GATS. In the event of serious balance of payments and
external financial difficulties or threat thereof, a member may adopt or maintain
restrictions on trade in services on which it has undertaken specific
commitments including on payments or transfers for transactions related to such
commitments.
The commitments of member countries under the GATS also include
national treatment (that is, to treat foreign suppliers of service like domestic
suppliers) and provision of market access.
m
c
The Agreement on Trade in Services also establishes o the basis for
. successive rounds of
a
progressive liberalization of trade in services through
m
negotiations, which also applies to other agreements under the Final Act.
a
As stated earlier, the fear of the developing countries is that the
n
ycountries by the multinationals of the industrialized
liberalization of trade in services will lead to the domination of the services
d
sector of the developing
countries. As au
t The developing countries are net importers of services and
matter of fact, the trade in services is already dominated by the
S
developed countries.
their deficit has been growing. The apprehension is that a liberalization of trade
in services will accentuate the problem.
Although many services are labour intensive and, therefore, the
developing countries should be expected to have an advantage here, there have
been several constraints in benefiting from this advantage. These include,
technical, organizational, financial and legal. Moreover, immigration laws of
developed countries restrict the manpower flow from the developing to
developed counties. This severely limits the scope of developing countries in
benefiting from their comparative advantage. It may be noted that the industrial
countries did not like to bring this issue in the Uruguay Round.
TRIMs
Trade Related Investment Measured (TRIMs) refers to certain conditions
or restrictions imposed by a government in respect of foreign investment in the
country. TRIMs were widely employed by developing countries.
The Agreements on TRIMs provides that no contracting party shall apply
any TRIM which is inconsistent with the WTO Articles. An illustrative likes
identifies the following TRIMS as inconsistent.
1. Local content requirement (i.e., a certain amount of local inputs be
used in Products.
m
2. Trade balancing required (i.e., imports shall not exceed a certain
proportion of exports)
c o
.
a
3. Trade and foreign exchange balancing requirements
m
4. Domestic sales requirement (i.e., a company shall sell a certain
a
proportion of its output locally)
The Agreement requires then
their phasing out withiny
notification of all WTO inconsistent TRIMs and
t
least developeducountries respectively. Transition period can be extended for
S and least developed countries if they face difficulties in eliminating
developing
TRIMs.
A number of TRIMs were employed in India prior to the liberalization
ushered in 1991 and many of them have been phased out since then.
TRIPS
One of the most controversial outcomes of the UR is the Agreement of
Trade Related Aspects of Intellectual Property Rights including trade in
counterfeit Goods (TRIPS). TRIPs along with TRIMs and services were called
the ―new issues‖ negotiated in the Uruguay Round.
Protection of intellectual property rights has become an issue of wide
and serious discussion with the formation of the General Agreement on Trade
Related Aspects of Intellectual property Rights (TRIPs) under the Uruguay
Round (UR) Agreement of the GATT (now the WTO)
Intellectual property rights may be defined as ―information with
commercial value‖. IPRs have been characterized as a composite of ―ideas,
inventions and creative expression‖ plus the ―public willingness to bestow the
status of property‖ on them and give their owners the right to exclude others
from access to or use of protected subject matter.‖
According to the WTO, intellectual property rights are the rights given to
persons over the creations of their minds. They usually give the creator an
m
exclusive right over the use of his/her creation for a certain period of time.
Intellectual property rights are customarily dividedo
. c into two main areas:
a
Copyright and Rights Related to Copyright
a
writings, musical compositions, paintings,
y n
films) are protected by copyright, for a minimum period of 50 years after the
death of the author.
dthrough copyright and related (sometimes referred to as
u
t rights are the rights of performers (e.g. actors, singers and
Also protected
S
neighboring‖)
musicians), producers of phonograms (sound recordings) and broadcasting
organization. The main social purpose of protection of copyright and related
rights is to encourage and reward creative work.
Industrial Property
Industrial property can usefully be divided into two main areas:
One area can be characterized as the protection of distinctive signs, in
particular trademarks (Which distinguish the goods or services of one
undertaking from those of their undertakings) and geographical indications
(which identify a good as originating in a place where a given characteristic of
the good is essentially attributable to its geographical origin).
The protection of such distinctive signs aims to stimulate and ensure fair
competition and to protect consumers, any enabling them to make informed
choices between various goods and services. The protection may last
indefinitely, provided the sign in question continues to be distinctive.
Other types of industrial property are protected primarily to stimulate
innovation, design and the creation of technology. In this category fall
inventions (protected by patents), industrial designs and trade secrets.
The social purpose is to provide protection for the results of investment
in the development of new technology, thus giving the incentive and means to
finance research and development activities.
m
c
A functioning intellectual property regime should oalso facilitate the
. investment, joint ventures
a
transfer of technology in the form of foreign direct
S
generally subject
the balance that has to be found between the legitimate interests of right holders
and of users.
IPRs may be legally protected by patents, copyrights, industrial designs,
geographical indications, and trade marks. Special (Sui generic) forms of
protection have also emerged to address specific needs of knowledge producers
as in the case of plant breeder‘s rights and the protection of layout designs of
integrated circuits. A number of countries also have trade secret laws to protect
undisclosed information that gives a competitive advantage to its owner.
The UR Agreement on TRIPs, described under the two broad categories
mentioned above, covers seven intellectual properties, viz.,
1. Copyright and related rights (i.e. the rights of performers, producers
of sound recordings and broadcasting organization)
2. Trademarks including service marks
3. Geographical indication including appellations of origin
4. Industrial designs
5. Patents including the protection of new varieties of plants
6. The layout designs of integrated circuits
7. Undisclosed information, including trade secrets and test data.
On copyrights and related rights, the Agreement requires compliance
m
with the provisions of Bern Convention to which India is a signatory and the
c o of the TRIPs
new Copyright Act of India already meets the requirements
Agreement. Trade and Merchandise marks Act of.
a
1958 was replaced by a new
m
Act, namely. The Trade Marks Act, 1999, so as to provide for the protection of
service marks also.
Objectives of Protection of n
a
Encourage and regardy
Intellectual property
m
high the duty of fully disclosing the invention.
a
Indian Patent Law and the UR Agreement
The Ur agreement onn
patent Act of 1970 and, y
patents is in substantial variance with the Indian
t
Being a memberuof the WTO, India is bound to align its patent law with the UR
S
Agreement.
The UR Agreement in respect of patents lays down more stringent
conditions and stronger protection than the Indian law.
Under the Indian Patents Act of 1970, only process patent (and no
product patent is applicable in respect of inventions relating to substances
intended for use as food, drug or medicines, or substances produced by chemical
processes is limited to the methods or processes of manufacture only. This
means that one can make and market a product similar to the patented product
through a different process or method than the patented one. This practice has
been very prevalent in the Indian pharmaceutical industry. The UR Agreement
requires both product and process patents.
Under the 1970 Act, patents expiry period is 5 to 7 years for some
products and 14 years for other products, whereas the UR Agreement stipulates
20 years for all products.
A major criticism of the Ur agreement is that the acceptance of product
patents will strangle the growth of the Indian pharmaceutical industry and the
monopolization of the vital areas of this industry by multinationals will result in
sharp increase in drug prices. This fear however seems to be exaggerated. One
study shows that the patented drugs constitute less than 16 per cent of the Indian
pharmaceutical market, and within the patented drugs segment, more than half
m
of the drugs have other therapeutic equivalents. Even in respect of these drugs, it
c
would not be very easy to jack up prices controls and other o means. The Drug
Prices Control Order (DPCO) has been in India.to control prices. It is also
a
from producing most of them in India.m
argued that today, the lack of patent protection has made foreign firms shy away
d
drugs, like those for cancer,
t
available, manyu of the drugs now being imported will start being made here, and
their S
prices will fall. One view is that when a new patent system becomes
effective, countries like India would become a production base for
multinationals and it would also increase the pharmaceutical exports from India.
A major area of concern for India is the protection of the biodiversity.
India does not have a sui generis system for its protection. The absence of a
legal mechanism to protect our heritage of common knowledge and even what
are there in the ancient books and scripts may lead to biopiracy by
firms/individuals in developed countries as happened in the case of granting
patent for the ‗invention‘ in the USA that turmeric can promote the healing of
wounds or the medicinal and other properties of neem.
DISPUTE SETTLEMENT
A proper mechanism for settling disputes is essential for effective and
smooth functioning of a rule based system. The WTO‘s procedure underscores
the rule of law, and it makes the trading system more secure and predictable.
The system is based on clearly defined rules, with timetables for competing a
case.
WTO members have agreed that if they believe fellow members are
violating trade rules, they will use the multilateral system of settling disputes
instead of taking action unilaterally. That means abiding by the agreed
procedures, and respecting judgments.
Typically, a dispute arises when one country o
m
c adopts a trade policy
. WTO members considers
a
measure or takes some action that one or more fellow
t u
no fixed timetables, rulings were easier to block, and many cases dragged on for
a longStime inconclusively. The Uruguay Round agreement introduced a more
structured process with more clearly defined stages in the procure. It introduced
greater discipline for the length of time a case should take to be settled, with
flexible deadlines set in various stages of the procedure. The agreement
emphasizes that prompt settlement is essential if the WTO is to function
effectively. It sets out in considerable detail the procedures and the timetable to
be followed in resolving disputes. If a case runs its full course to a first ruling, it
should not normally take more than about one year – 15 months if the case is
appealed. The agreed time limits are flexible, and if the case is considered
urgent (e.g. if perishable goods are involved), then the case should take three
months less.
The Uruguay Round agreement also made it impossible for the country
losing a case to block the adoption of the ruling. Under the previous GATT
procedure, ruling could only be adopted by consensus, meaning that a single
objection could block the ruling. Now, ruling are automatically adopted unless
there is a consensus to reject a ruling any country wanting to block a ruling has
to persuade all other WTO members (including its adversary in the case) to
share its view.
Although much of the procedure does resemble a country or tribunal, the
preferred solution is for the countries concerned to discuss their problem and
m
settle the dispute by themselves. The first stage is therefore consultations
between the governments concerned, and even when the o
c case has progressed to
. possible.
a
other stages, consultation and mediation are still always
d
followed in anti – dumping
t u
measures. It also clarifies the role of dispute settlement panels in conflicts
S
relating to anti dumping actions taken by national authorities.
A product regarded as dumped when its export price is less than the
normal price in the exporting country or its const of production plus a
reasonable amount for administrative, selling and any other costs and for profits.
Anti dumping measures can be employed only if dumped imports are
shown to cause serious damage to the domestic industry in the importing
country. Further, antidumping measures are not allowed if the margin of
dumping (i.e., the price differences) is de minimis (defined as 2 per cent of the
export price of the product) or the volume of dumped imports is negligible (less
than 3 per cent of imports of the product in question)
Dumping occurs when the price at which the goods are exported to India
is lower than their normal value. The difference between this export price and
the normal value is known as the margin of dumping. It is generally expressed
as a percentage of the export price. In the ordinary course of trade, the normal
value is the comparable price at which goods under complaint are sold in the
domestic market of the exporting country or territory. If the normal value cannot
be determined this way, the following two alternative methods are provided for
1. Comparable representative export price to an appropriate third country
2. Cost of production in the country of origin with reasonable addition for
m
administrative, selling and general costs and for profits.
In India, anti – dumping actions are taken by the
c oDirectorate of Anti
. as per the Customs
a
Dumping and Allied Duties, Ministry of commerce,
d
material injury to the
India to dou
t familiarity.
so depends on proper environmental monitoring, database and
S
procedural
Material retardation to the establishment of an industry is also regarded
as injury. For anti dumping actions, a causal link between the material injury
being suffered by the Indian industry and the dumped imports met be
established.
The economic and financial impact of the dumped imports on the
concerned Indian industry can be demonstrated, inter alia, by decline ion
output, loss of sales, loss of market share, reduced profits, decline in
productivity, decline in capacity utilization, reduced return on investments,
price effects, and adverse effects on cash flow, inventories, employment,
wages, growth, invested, ability to raise capital etc. Anti dumping action is
not applicable if the margin of dumping is insignificantly small (less than
two per cent of the export price) or the volume of imports is negligible (i.e.,
the volume from one country is less than three per cent of the total imports
of that product), provided the aggregate imports from such countries do not
account for more than seven per cent of total imports.
Anti dumping duty shall not exceed the margin of dumping. It is
suggested tat it would be desirable of the appropriate authorities impose a
lesser duty which is adequate to remove the injury caused to the domestic
industry. The Government of India has accepted this principle.
m
Anti dumping actions may be suspended or terminated if the exporter
concerned furnishes an undertaking to revise the o
c price to remove the
dumping or the injurious effect of dumping..The rules also provide for
a
The anti dumping investigationm
retrospective measures in certain cases.
yn
figure 1.1.
d Preliminary screening
S Initiation
Exporting country allowed to modify practice
Preliminary findings
Final findings and measure
m
Safeguard measures would not be applicable to developing countries
where their share in the member country‘s imports of theo
. c product concerned is
a
relatively small.
m
Japan. As a single country, the largest gain in absolute terms will accrue to the
c
US (between $28 and $ 67 billion). It will be between $ 27oand $ 42 billion for
Japan, between $61 and $98 billion for the EU and.
a
between $ 36 and $78 billion
S
implemented.
billion. The value of world exports (including services will increase by around
10 percent. Exports of North America will increase by 8 per cent and European
Union by 10.3 per cent. Some of the largest projected increases in world trade
are in areas that are of interest to developing countries. For instance, world trade
in textiles is projected to grow by 34 percent, that in clothing by 60 per cent and
that in agricultural, forestry and fishery products by 20 per cent.
According to the estimates made by the World Bank, OECD and the
GATT Secretariat the income effects of the implementation of UR package will
add between $213 to $274 billion annually to world income. The GATT
Secretariat‘s estimate of the overall trade impact is that the level of merchandise
trade in goods will be higher by $745 billion in the year 2005, than it would
otherwise have been. The largest increase will be in the areas of clothing (60 per
cent), agricultural, forestry and fishery products (20 per cent) and processed
food and beverages (19 per cent). Since India‘s existing potential export
competitiveness lies to a significant extent in these product groups, India could
be expected to obtain gains in these sectors.
According to one estimate, cuts in protection on total merchandise trade
will increase real incomes in developing countries by $55 to $90 billion (or 1.2
to 2 per cent of their GDP in 1992) while the gains to the world as a whole will
be in the order of $200 billion.
m
UR AGREMENT AND DEVELOPING COUNTRIES
c o
. with the outcome of
a
The developing countries, in general, are dissatisfied
S
Agreement
protection against competition from the unequal developed economies.
However, as in the previous Rounds, the UR also gives special considerations to
developing countries, particularly to the least developed countries and to those
with balance of payments problems. The Agreement, however, lays down that
member countries imposing trade restrictions for balance of payment purposes
should do so in a way that causes minimum disruption to international trade and
quantitative restrictions should be avoided as far as possible.
In deed, it would be the developed countries who would suffer most by
liberalization of the agricultural sector. But to argue that the developed countries
should completely liberalise agriculture without any reciprocity on part of the
developing countries is clearly illogical. As a matter of fact, the UR proposals in
respect of agriculture, as in several other cases, give special consideration to the
developing countries. Developed countries will, however, be hit hard. For
example, agricultural subsidies in the European countries have been of the order
of 30 to 50 per cent.
While the liberalization of agricultural trade and the increase in
agricultural prices due to cut in producer subsidies in the developed countries
would benefit agricultural exporters, the increase in food prices due to cut in
m
subsidies may adversely affect the food importers. More than 100 of the
developing nations are reported to be net food importers. o
in food prices should be expected to make food .
c However, the increase
a
production in these countries
a
it has been alleged that the subsidization
production in the developedn
y countries where farmers have not been able to
countries would have the effect of discouraging
d
their production in the developing
compete with u
tis estimated that since subsidies agricultural exports cannot be
the imported stuff bearing artificially low price because of the
S
subsidies. It
dumped on the world market, international agricultural prices could go up by as
much as 10 per cent.
One of the major areas of disappointment for many developing countries
is trade in textile. A textile is one of their most important export items but
developed countries have been following a very restrictive import policy. The
developing countries wanted a fast phasing out of the Multifibre arrangement
(MFA) under which the textile imports have been restricted. However, the MFA
will be phases out, in stages, over a 10 year period and a major part of the
liberalization will take place only towards the end of the transitional period. A
little consolation for the developing countries is that the US demand for
extending the phase out period to 15 years was not accepted.
International trade in textiles is estimated to be worth $ 240 billion a
year. Estimates are that after the phasing out of MFA, world exports of textiles
may go up by $25 billion a year. With a 2.2 per cent share in the world textile
trade. India‘s share in the additional exports could be $0.55 billion. But the real
gain will depend on the country‘s ability to compete with countries like china,
Hong Kong, Taiwan, South Korea, etc., which are considered leaders in the
textile trade.
Developing countries were very apprehensive about the proposal to
m
liberalise trade in services. However, fortunately for them, the differences of
opinion between the US and EC on this issue left the o
c service sector largely
unaffected. The effect of the UR is not the same on.all countries. For example, a
a
m
measure which favorable agents one developed country may unfavorably affect
a
another developed country. Further, the extent of the favorable or unfavorable
n
occurred both among y
impact may also vary. It is therefore, quite natural that conflict of interests have
countries wereu
d developed and developing countries. Latin American
Sthey calculated that if they could gain a direct entry to the NAFTA
because
through some regional arrangement, it would provide them an edge over
competitors like India and Pakistan.
Some studies also show that sub Saharan Africa, Indonesia and some
Caribbean islands will be poorer as a result of the UR Agreement. However, if
liberalization leads to higher productivity, they would also gain.
No country is, therefore, entirely pleased with the UR proposals. ―The
surest proof of the success of the Uruguay Round is that no country is entirely
happy at the outcome.‖ Although India is quite dissatisfied that the textile trade
is no adequately liberalised, some people in the US are angry over the
liberalization move, alleging that two million jobs in the US would now hang in
balance.
As the foreign minister of Uruguay remarked, all nations which signed
the Uruguay Round Trade Agreement have ―a sense of shared dissatisfaction.‖
As the GATT Director General Peter Southerland stated, the signing of the
Uruguay Round trade pact does not mean the end of disputes. There will be
disputes between developed and developing countries, between developing
countries and between developed countries. ―There are more than 5 billion
people competing for their share of the pie, and that makes conflicts all the more
inevitable.‖
m
One of the achievements of the UR is the making of the rules and
c
regulations more transparent, thus making trade harassment o and unilateral
. implemented by the newly
a
actions more difficult. The results of the UR will be
m
set up World Trading Organisation (WTO) making dispute settlement and
arbitration easier.
a
The tragedy, however,n
y the provisions of the UR Agreement which will
is that not only that the developed countries are
S
protectionists
UNEQUAL PARTICIPATION
Although it was expected that significant benefits would accrue to the
developing countries from the UR Agreement, they have been encountering
many road blocks.
The developing countries are disadvantaged in the WTO system because
of their inability to effectively participate in the negotiation process. They suffer
from lack of intellectual and financial cability to meaning fully participate in the
discussions and negotiations. They are not able to understand the implications
and possible impacts of different proposals and agreement because of their
analytical deficiencies. According to Dubey, ―most of the agreements and
understandings reached during the Uruguay Round trade negotiations are
unequal and unbalanced fro0m the point of view of developing countries. This
was mainly because of the weak bargaining position of these countries, their
general state of unpreparedness of the negotiations, their dearth of skilled
manpower and financial resources to participate effectively, and the lack of
transparency in the negotiating process.
Besides, lack of earnestness on the part of the governments is also
responsible for the suffering of the developing countries. For example, they
m
delay in taking protective measures in respect of geographical indications by
m
The developing countries are virtually deceived in several cases as the
UR Agreement has been implemented
a in letter and spirit by the developed
n
countries the legitimate y
countries. They have resorted to covert measures to deny the developing
Dubeyu
d benefits of the proposed trade Liberlisation.
m
restore a modicum of balance in WTO agreements after and unfortunately
c o in the Uruguay
belated realization that developing countries were short changed
. of the international
a
Round negotiations. What is at stake is the very credibility
a to restore credibility.
THE DOHA DECLARATION
y n
d
The fourth ministerial meeting of the WTO was held in Doha in
t
November 2001 u in which Ministers from the 142 member countries participated.
They Sattracted a lot of attention because of the conflict of interests of the
developed and developing countries.
The developed countries wanted a new round of multilateral trade negotiation to
be launched soon, covering what are known as the Singapore Issues (a list of
seven items which were proposed at the meeting in Singapore in 1996 for future
negotiations. These included: investment, competition policy, trade facilitation,
transparency in government procurement, environment, agriculture and trade
related aspects of intellectual property rights (TRIPs)
Developing countries like India on the other hand held that the
implementation Issues should be resolved before a new Round. Indian has
almost single handedly fight against the developed countries. The Doha meet
concluded by drawing up the ‗Doha development Agenda‘ for new trade
liberalization talks; with India approving the ministerial declaration only after it
was satisfied that the conference Chairman‘s statements had addressed the
country‘s concerns in the four Singapore issues of foreign investment,
competition policies, transparency in government procurement and trade
facilitation.
Although the developed nations, as expected, won the upper hand,
India‘s bold stand has had a commendable impact. Because of India‘s refusal to
m
approve the agenda unless it was modified, the Chairman of the meeting
announced that an explicit consensus would be required o
c at the fifth ministerial
.on the highly controversial
a
conference in2003, before negotiations could begin
a
single developing country can have such
the developing countries cann
y adopted three major declarations: (i) on the
have profound impact.
d
The Doha Ministerial
t u
negotiating agenda for the new WTO round (ii) on some 40 implementation
Sof the developing countries and (iii) on the political statement dealing
concerns
with patents and public health.
One remarkable achievement of the Doha Ministerial for developing
countries is that in the case of TRIPs and public health, it allowed waiver of the
patent law to fact a national emergency. Now it will be possible for developing
countries to set aside the patent laws if they have to face epidemics such as
malaria, tuberculosis and AIDS. Each country has been given the freedom to
define a national emergency.
In agricultural, it is conceded by all countries that subsidies need to be
reduced and should be ultimately phased out. However, in the case of food
security concerns, exception is permitted. All forms of export subsidies will be
phased out. This is a big problem for the developed countries which have been
providing mounting subsidies.
The success or failure of developing countries will depend on to what
extent India can muster the support of other developing countries to fight for
their common cause as well as how well it will do its own home work to be
effective at the negotiation
UR AGREEMENT AND INDIA
m
The Uruguay Round Agreement has come in for scathing criticisms in
India. Many politicians and others have argued that Indiao
c should withdraw from
.or due to lack of knowledge
a
the GATT. Most of the criticisms are either baseless
mparties.
of the international trading environment, and misinformation, or are just meant
a
to oppose the government by the opposition
n
y countries like India are losing only that their gain
It is true that the Round mostly benefits the developed countries. That
S Accepting
from the WTO will be a great blunder that the nation can commit. By being a
part of WTO India enjoys the most favoured nation (MFN) status with all the
other members of the WTO. Opting out of the system would mean an infinitely
laborious task of entering into bilateral negotiations with each and every one of
the trading partners which would amount to ‗having one‘s arms twisted
bilaterally by the US, the EC and Japan, turn by turn, on everything from
intellectual property rights to NPT, human and environmentally clean
technologies for packaging.‖ It may be noted at this juncture that China got
readmitted to the system after a long wit and lobbying.
One major controversy of GATT is the agricultural subsidies. Much hue
and cry has been raised in India about this factor. However, it needs to be
mentioned that the GATT decision would not adversely affect India‘s
Agricultural subsidies and its agriculture exports. Other developing countries
would also largely benefit because of the lowering of the agricultural protection
be the developed countries, in spite of the fact that the wish of the developing
countries that the major Western nations would totally drop subsidies for their
producers. Substantially lower tariffs and open markets did not materialize.
According to Government of India, the Market Access Agreements
m
signed by India with the USA and EU will result in additional export earnings of
m
with the multinational trade system and will provide larger earnings during these
periods.
Assuming that India‘sn
a
cent, and that she is abley
market share in world exports improves to one per
More S
t may consequently be placed at $ 2.7 billion exports per year.
generous estimates range from $ 3.5 to 7 billion worth of extra exports.
However India‘s gain will be much less than those of several other
developing countries like Chine and the newly industrialized economies
because:
India‘s share in the world trade is very low and (2) the foreign trade – DGP ratio
of India is low. The gain will also depend on the rate of growth of India‘s
exports.
India has taken several measures to comply with the TRIPs Agreement. On
copyrights and related rights, the Agreement requires compliance with the
provisions of Bern Convention to which India is a signatory and the new
Copyright Act of India already meets the requirements of the TRIPs Agreement.
Trade and Merchandise Marks Act of 1958 were replaced by a new Act, namely,
The Trade Marks Act, 1999, so as to provide for the protection of service marks
also.
Our recently amended patent law contains provisions for mandatory
disclosure of source and geographical origin of the biological material used in
the invention while applying for patents in India. Provisions have also been
incorporated to include non-disclosure or wrongful disclosure of the same as
grounds for opposition and for revocation of the patents, if granted. To protect
traditional knowledge from being patented, provisions have also been
m
incorporated in the law to include anticipation of invention by available local
c
knowledge, including oral knowledge, as one of the grounds o for opposition as
. theses provisions, a
a
also for revocation of patent. In order to further strengthen
d
India is a party to
t
came into forceu in December 1993. The CBD offers opportunities to India to
realizeSthe benefit of these resources. The Protection of Plant Varieties and
Farmers Rights Act were passed with the objective of giving a significant thrust
to agricultural growth by providing and effective system for the protection of
plant varieties and farmers rights. This is expected to stimulate investment in
R&D for the development of new plant varieties.
The Geographical Indication of Goods (Registration and Protection) Act,
1999 passed by parliament is another step taken by India. The Act primarily
intends to protect the valuable geographical indications of our country. The
protection under the Act is available only to the geographical indication
registered under the Act and to the authorized users. The Act permits any
association of persons or producers or any organization or authority established
by law representing the interest of the producers of goods to register a
geographical indication. It may be possible to argue that the holders of the
traditional knowledge in goods produced and sold using geographical indication
can register and protect their traditional knowledge under this law.
Various suggestions have been advanced in India to extend protection to
knowledge, innovations and practices. These include; (i) documentation of
TK, (ii) registration and innovation patent system, and (iii) development of an
associated TK could help in checking bio – piracy. Documentation could be a
double-edged sword. It is assumed that if the material/knowledge is
m
documented, it can be made available to patent examiners the world over so that
c o
prior art in the case of inventions based on such materials/knowledge are/ is
.
a
readily available to them.
m
The Indian legislation for the Protection of Plant Varieties and Farmers‘
Rights Act 2001 also acknowledges
collection, characterization, n
a that the conservation, exploration,
m
6. To understand Trade Related Intellectual Property Right(TRIPS)
7. To understand Dumping & Counter trade
c o
. and its effect on
a
8. To understand the E-Commerce Transactions
m
Taxation
a
1. LICENSING
y n
d
Licensing can be defined as a contractual arrangement whereby one company
(the licensor) u
troyalties; license fees, or some other form of compensation. The
makes an asset available to another company (the licensee) In
S
exchange for
licensed assume may be a patent, trade secret, or company name. Licensing is a
form of global market entry and an expansion strategy with considerable appeal.
A company with advanced technology, know-how, or a strong brand image can
use licensing agreements to supplement its bottom-line profitability with little
initial investment. Licensing can offer an attractive return on investment for the
life of the agreement, providing the necessary performance clauses are in the
contract. The only cost is the cost of signing the agreement and of policing its
implementation.
Of course, anything so easily attained has its disadvantages and risks. The
principal disadvantage of licensing is that it can be a very limited form of
participation. When licensing technology or know-how, what a company does
not know can put it at risk. Potential returns from marketing and manufacturing
may be lost, and the agreement may have a short life if the licensee develops its
own know-how and capability to stay abreast of technology in the licensed
product area. Eyen more distressing, licensees have a troublesome way of
turning themselves into competitors to industry leaders. This is especially true
because licensing enables a company to borrow-leverage and exploit-another
company's resources. In Japan, for example, Meiji Milk produced and marketed
Lady Borden premium ice cream under a licensing agreement with Borden, Inc.
m
Meiji learned important skills in dairy product processing, and, as the expiration
d
make small, battery-powered
impossible to u
ta radio; they advised him to try making hearing aids. Undeterred,
manufacture transistors that could handle the high frequencies
S
required for
Ibuka presented the challenge to his Japanese engineers, who spent many
months improving high-frequency output. Sony was not the first company to
unveil a transistor radio; an American-built product, the Regency, featured
transistors from Texas Instruments and a colorful plastic case. However, it was
Sony's high quality, distinctive approach to styling, and marketing savvy that
ultimately translated into worldwide success.
Conversely, the failure to seize an opportunity to license can also lead to dire
con" sequences. In the mid-1980s, Apple Computer chairman John Sculley
decided against licensing Apple's famed operating system. Such a move would
have allowed other computer manufacturers to produce Macintosh-compatible
units. Meanwhile, Microsoft's growing world dominance in computer operating
systems and applications got a boost from Windows, which featured a Mac-like
graphical interface. Apple belatedly reversed direction and licensed its operating
system, first to Power Computing Corporation in December 1994 and then to
IBM and Motorola. The Mac clones have been very popular; Power Computing
shipped 170,000 Macintosh clones in 1996, and in 1997 the. Mac clones had
captured over 25 percent of the Mac market. Despite these actions, the global
market share for Macintosh and Mac clones has slipped below 5 percent.
Apple's failure to license its technology in the pre-Windows era ultimately cost
m
the company over $125 billion dollars (the market capitalization of Microsoft,
the company that won the operating system war).
c o
As the Borden and transistor stories make clear, .
a
companies may find that the
m
upfront, easy money obtained from licensing turns out to be a very expensive
a
source of revenue. To prevent a licensor/competitor from gaining unilateral
benefit, licensing agreementsn
yabsolute minimum, any company that plans to remain
should provide for a cross-technology exchange
d
between all parties. At the
t u
in business must ensure that its license agreements provide for full cross-
S is, the licensee shares its developments with the licensor. Overall,
licensing-that
the licensing strategy must ensure ongoing competitive advantage. For example,
license arrangements can create export market opportunities and open the door
to low-risk manufacturing relationships. They can also speed diffusion of new
products or technologies. .
m
permits its name, logo, cultural design, and operations to be used in
a
establishing a new firm or store.
y n
2. JOINT VENTURES
d
u
t in foreign markets than either exporting or licensing. The
A joint venture with a local partner represents a more extensive form of
S
participation
advantages of this strategy include the sharing of risk and the ability to combine
different value chain strengths-for, example, international marketing capability
and manufacturing. One company might have in-depth knowledge of a local
market, an extensive distribution system, or access to low-cost labor or raw
materials. Such a company might link up with a foreign partner possessing
considerable know-how in the area of technology, manufacturing, and process
applications. Companies that lack sufficient capital resources might seek
'partners to jointly finance a project. Finally, a joint venture may be the only way
to enter a country or region if government bid award practices routinely favor
local companies or if laws prohibit foreign control but permit joint ventures.
Because of these clear advantages, especially in emerging markets, the
conventional wisdom is that a joint venture is the only way to go. Not all agree
With this "wisdom." In China, according to Wilfried Vanhonacker, the situation
is changing rapidly, and today companies should think beyond the equity joint
venture (EJV) with a well-connected local partner and consider the alternative of
a wholly foreign-owned enterprise (WFOE). In China, EJVs and WFOEs are
substantially the same in terms of taxation and corporate liability. They operate
under similar rules and regulations. There arc some technical differences, but the
bottom line is that the WFOEs take less time to establish than EJVs and do not
require a board of directors.
m
c oin China from the
Today, there is a shift on the part of foreign investors
. Investors achieve greater
a
EJV to the WFOE. The reasons are fundamental:
a
concerned about what a company brings
technology, and know-how than n
y each case must be decided on its merits. Two
it is about how its deals are structured.
d
In China, as everywhere,
questions mustu
t are the interests and capabilities of the partners going forward?
be answered in every case: What does each partner bring to the
S
deal, and what
The fact is that joint ventures are hard to sustain even in stable environments
because the partners to a joint venture have different capabilities, resources,
visions, and interests. In fast-growing and fast-changing environments, it is
much more difficult to sustain joint ventures. In China, for example, access to
markets has been hindered by what foreign investors thought was the essential
success factor in China: guanxi (relationships). In fact, what many investors
have discovered is that China is a big country and the scope of their partner's
guanxi is limited. Many investors have discovered to their disappoin1ment that
their partner lacked the guanxi needed to move forward. A WFOE can retain
agents and advisors to assist it in acquiring the land; materials, approvals, and
services that it needs to do business in China.
It is possible to use a joint venture as a source of supply for third-country
markets. This must be carefully thought out in advance. One of the main reasons
for joint venture "divorce" is disagreement about third-country markets in which
partners face each other as actual or potential competitors. To avoid this, it is
essential to work out a plan for approaching third-country markets as part of the
venture agreement.
The disadvantages of joint venturing can be significant. Joint venture
partners must share rewards as well as risks. The main disadvantage of this
m
global expansion strategy is that a company incurs very significant costs
associated with control and coordination issues that ariseo
c when working with a
. joint venture partner
a
partner. Also, as noted earlier with licensing, a dynamic
a
restrictions limit the share of capital help
differences in managerial n
y
attitudes and behavior can present formidable
challenges
James River's u
d as well.
m
subsequently applied at its Camry plant in Kentucky. However, some American
c o
managers involved in the venture complained that the manufacturing expertise
they gained was not applied broadly throughout .
a
GM. To the extent that this
y n
Gillette, for example, has used this strategy to introduce its shaving products in
d
the Middle East and Africa.
u
t STRATEGY ALTERNATIVES
S
MARKETING
Regardless of the entry form selected, companies must decide on their marketing
strategy for each market. Broadly, the alternatives are to use independent-agents
and distributors or to establish a company-owned marketing subsidiary.
The advantage of the agent/distributor option is the fact that it requires little
investment. It is a pay-as-you-go option. The disadvantage of this option is that
it does not create a company presence in the market and it does not give a
company control over its marketing effort. In addition, agents and distributors
are not necessarily a no investment option. If the manufacturer has deep pockets,
any -termination of an agency or distributorship agreement may lead to a claim
by the agent or distributor for lost profits and damages. A written contract with a
no-cause termination clause is 110 guarantee of protection from an
agent/distributor lawsuit because agents and distributors may press claims on the
grounds of a breach of good faith.
m
advantage of distributor and agent capabilities. The local presence of the
company can provide a much better communications linko
c with the regional and
. that the company's effort
a
world headquarters and, if it is well executed, ensure
m
reflects the fullest potential of the company's ability to execute a global strategy
with local responsiveness.
a
y n
dstrategies and plans that work. In China, Procter & Gamble
With a local subsidiary presence, a company can focus on formulating and
t u
executing marketing
(P&G)S operates with a combination of joint venture-s and its own company
presence, with P&G marketing executives directing the company's China
strategy. This approach has enabled P&G to increase its share of the urban
shampoo market to 60 percent as compared to 9 percent for Unilever. P&G has
invested heavily in market research, advertising, and distribution, and in creating
its own command presence in the market. As a result of these initiatives, Head &
Shoulders, P&G's brand, is China's fastest growing hair care brand.
GATT –General Agreement on Trade and Tariff
a
Eight major trade negotiations took place under
enlisted below:
m
a
yn
1. Geneva - 1947
2. Annecy – 1949
3. Torquay –d
u
t – 1956
1951
S 4. Geneva
5. Geneva, Dillon Round – 1960-61
6. Geneva ,Kennedy Round – 1964-67
7. Geneva,Tokyo Round – 1973-79
8. Punta del,Uruguay Round – 1986-94
The first round in 1947 (Geneva) saw creation of the GATT. The second
round in 1949 (Annecy, France) involved negotiation with nations that desired
GATT membership. The principal emphasis was on tariff reduction. The third
round in 1951 (Torquay, England) continued accession and tariff reduction
negotiations. The fourth round in 1956 (Geneva) proceeded along the same track
as earlier rounds. The fifth round in 1960-61 (Geneva, Dillon Round) involved
further revision of the GATT and the addition of more countries. The sixth
round in 1964-67 (Geneva, Kennedy Round) was hybrid of earlier product-by-
product approach with across the board tariff reductions. The seventh round in
1973-79 (Geneva, Tokyo Round) centered on the negotiation of additional tariff
cuts and developed a series of agreements governing the use of non-tariff
measures. The eighth round (Uruguay Round) started in 1986 and was
concluded in April 1994.
Uruguay Round
m
c o
.
Uruguay Round of Multilateral Trade Negotiations was launched at Punta
a
del Este in September 1986. These talks were the most ambitious and complex
m
so far. Negotiations covered not only traditional GATT subjects such as tariff
a of GATT rules and disciplines on
nalso extended to new areas not dealt with by
and non-tariff measures and the improvement
y
subsidies, safeguards, etc. but
GATT earlier, suchd
tu Measures (TRIMs) and Trade in Services and Agriculture.
as Trade Related Intellectual Property Rights (TRIPs), Trade
Related Invest-ment
S Round was formally concluded at the Ministerial Conference held
The Uruguay
in Marrakech, Morocco, from 12-15 April 1994. India, along with 110 other
countries authenticated the results of the Uruguay Round by signing the Final
Act. In addition, 104 countries also signed the Agreement establishing the
World Trade Organisation (WTO). The WTO Agreement has come into force
from January 1, 1995 and India has become a founder member of the world
Trade Organisation, by ratifying the WTO Agreement on 30th December 1994.
Estimates have been made by the World Bank, OECD and the GATT
Secretariat, which show that the income effects of the implementation of the
Uruguay Round package will add between 213 and 274 billion U.S. dollars
annually to the world income. The GATT Secretariat's estimate of the overall
trade impact is that the level of merchandise trade in goods will be higher by
745 billion U.S. dollars in the year 2005, than it would otherwise have been. The
GATT Secretariat further projects that the largest increases will be in the areas
of clothing (60 per cent), agriculture, forestry and fishery products (20 per cent)
and processed food and beverages (19 per cent). Since India's existing and
potential export competitiveness lies in these product groups, it is logical to
believe that India will obtain large gains in these sectors. Assuming that the
m
India's market share in world exports improves from 0.5 per cent to 1 per cent,
m
exports per year. A more generous estimate will range from 3.5 to 7 billion U.S.
dollars worth of extra exports.
a
y n
d
There are several areas in the Uruguay Round package that relate to market
access. The u
t more important ones are tariffs, textiles and garments and
S
agriculture.
(i) In most developed countries, industrial tariffs have been reduced and
are now bound at very low levels (an average of 5 per cent). They are
not a significant barrier to trade. Developing countries have also been
reducing their tariffs. The overall tariff reduction in the Uruguay
Round is an average of one-third. On industrial raw materials,
components and capital goods, India has bound tariffs at 40 per cent
(where they were above 40 per cent (1993-94) and at 25 per cent in
other cases). Tariff reductions where necessary are to be carried out
in six equated annual installments from March 1,1995. As the
reference date for reducing tariffs January 1,1990, when Indian
tariffs were high and substantial autonomous tariff reductions have
been undertaken, since then, in the initial years there is no obligation
to undertake significant tariff reductions. At present 50 per cent of
our tariff lines are bound and after the Uruguay Round Agreement
come into force, about 68 per cent of tariff lines will be bound. In
comparison, many developing countries in Asia and Latin America
have bound between 90 percent and 100 percent of their tariff line at
levels comparable to, or lower than, India‘s biding.
m
(ii) The textile and clothing agreement also forms part of the market
o
access. A major achievement has been the commitment to integrate
c
.
this sector into multilateral frame work. The 10 year transition period
a
in the textile agreement will enable India to devise policies and allow
m
a
strategic reaction on the part of industry so as to reap the greatest
d of textile agreement.
linked tariff reduction
t u
implementation
S
(iii) India has assured that all major programme for the development of
agriculture will be exempted from the discipline from agricultural
agreement. On agricultural tariff developing countries have the
flexibility of indicating maximum ceiling bindings.
Agreements on Textiles
India has signed two separate agreements with the USA and the EU on
December 31,1994 on the subject of Market Access in Textiles. These
agreements have been entered into with a view to facilitate trade in textile
products between India and the USA and EU countries. At present,
approximately two-thirds of India's total textile exports are to these countries.
It has been estimated that if India is able to utilise fully the additional access
gained as a result of the two agreements, it will result in additional earnings of
around Rs. 1,100 crore per annum in the initial years. Because of the growth
rates in the quotas built into the Agreement on Textiles and Clothing of the
Uruguay Round, the additional access achieved will get magnified in the second
and third phases of integration and will provide larger earnings during these
periods.
m
In order to accommodate some of the concerns of the USA and the EU, India
c o
was agreed to grant a phased tariff liberalisation schedule for certain items with
the WTO, at varying rates, for periods commencing.from three to seven years. In
a
m
addition, India has also agreed to open up its market for textile products, in a
a
phased manner. Broadly speaking, in the first phase India has agreed to allow
y n
fibres, yams and industrial fabrics, which are basic raw materials and in some of
d
which domestic requirements are not adequately met, to be placed on the OGL.
t u
In the next phase, fabrics and in the subsequent phase, made-up items and
And the momentum of trade liberalization helped ensure that trade growth
consistently outpaced production growth throughout the GATT era. The rush of
new members during the Uruguay Round demonstrated that the multilateral
trading system, as then represented by GATT, was recognized as an anchor for
development and an instrument of economic and trade reform.
m
provided by the GATT.
c o
.WTO is the embodiment of
World Trade Organisation
a
The WTO was established on January 1, 1995. The
m
the Uruguay Round results and the successor to GATT. 76 Governments became
aday. As of December 2000, there are 142
members of the WTO and n
members of the WTO on its first
a
agreements had been added of a plurilateral,
m
nature. The agreements which constitute the WTO are almost all
WTOS
is a watchdog of international trade, regularly examining the trade regimes
of individual members. In its various bodies, members flog proposed or draft
measures by others that can cause trade conflicts. Members are also requiring
notifying various trade measures and statistics, which are maintained by the
WTO in a large data base.
The WTO is also a management consultant for world trade. Its economist keeps
a close watch on the pulse of the global economy, and provides studies on the
main trade issues of the day.
Ministerial Working Groups Set up by the WTO
The WTO set up five Ministerial Working Groups to deliberate on the key areas
of negotiations. These were:
1. Agriculture
m
addressed. Even though no final conclusion could be arrived at, the following
c o
gives a synoptic view of what transpired in those Working Group meetings:
.
1. Agriculture
a
m
The main issues on which debate took place were:
t u
products).
The discussions proceeded on two broad lines. One group favoured the ultimate
goal of complete integration of agricultural trade with the WTO rules, total
elimination of export subsidies, substantial increase in market access and
support to non-trade objectives through policies not distorting trade. The other
group emphasized the distinct character of agriculture totally and the
consequential non-desirability of subjecting agriculture to the disciplines
governing other products. The principle of elimination of export subsidies was
also not acceptable to this group which also stressed the need to take cognizance
of multi-functionality of agriculture. According to press reports, there was some
movement towards convergence of views on export subsidies.
c
.
and the need for extending deadlines in TRIPs, TRIMs and
Customs Valuation.
a
m
(ii) changing certain provisions of Anti-dumping, Subsidies and
a
yn
Textiles Agreements.
S
Technical Barriers
and environment related issues. It expressed a certain degree of flexibility
regarding implementation issues. The USA indicated its flexible attitude
regarding TRIMs, customs valuation, agriculture, SPS, rules of origin and
making S&D' provisions more operational for the developing countries.
There was a strong divergence of standpoints on anti-dumping, subsidies
and textiles. Japan stressed the need to consider anti-dumping measures as a
disguised form of protectionism, nullifying the benefits of tariff reduction.
3. Market Access
(i) The points for deliberations included, inter alia, the following:
Coverage of the scope of negotiations—whether they should cover all
agricultural products or there should be some exemptions.
(ii) Overall objective of the negotiations, i.e., the level of tariff cuts.
(iii) Non-tariff measures affecting market access.
(iv) How to address this specific concern of the least developed
countries? There was a proposal for extending bound zero tariffs for
exports from the least developed countries to the developed country
markets.
There was also a discussion on the methodology of tariff cutting exercise.
m
o
Unlike the Uruguay Round which followed the request-offer approach, there
c
.
was a proposal for the harmonized approach to facilitate comparisons of tariff
a
reduction proposals. There was also a proposal for combining the request-offer
m
and harmonization approaches in future negotiations.
a
n
4. Singapore Agenda and Other Issues
The major issue wasy
d
whether members could agree to start negotiations on
u
t While a number of delegations were in favour of negotiations to
investment and competition as parts of the new Round. There was divergence of
S
opinion on this.
be launched in the Third Ministerial Conference, others were of the view that
study and analysis of these topics should continue to be in the Working Groups
on investment and competition set up in the Singapore Ministerial Conference.
There was also no progress towards convergence of view on TRIPs,
Government procurement and trade facilitation.
5. Systemic Issues
The Group deliberated on the following:
De-restriction of documents,
WTO organisational structure to improve transparency and decision
making,
Improving information flows, and
Enhancing public understanding of participation in the working of WTO.
The Group also deliberated on the role of the NGOs in inter-
governmental organisations such as WTO.
m
investment imposed numerous restrictions on that investment designed to
c o
protect and foster domestic industries, and to prevent the outflow of foreign
. include local content
a
exchange reserves. Examples of these restrictions
d
technology transfer requirements,
t u
require the export of a specified percentage of production volume), local equity
S
restrictions, foreign exchange restrictions, remittance restrictions, licensing
requirements, and employment restrictions. These measures can also be used in
connection with fiscal incentives as opposed to requirement. Some of these
investment measures distort trade in violation of GATT Article III and XI, and
are therefore prohibited.
m
o
Legal Frame Works
. c
GATT 1947 prohibited investment measures that violated the principles of
a
national treatment and the general elimination of quantitative restrictions, but
m
the extent of the prohibitions was never clear. The TRIMs Agreement, however,
contains statements prohibiting a
nXI of GATT 1994. In addition, it provides an
any TRIMs that are inconsistent with the
y
provisions of Articles III or
dexplicitly prohibits local content requirements, trade
tu foreign exchange restrictions and export restrictions
illustrative list that
balancing requirements,
Ssales requirements) that would violate Article III:4 or XI:1 of GATT
(domestic
1994. TRIMs prohibited by the Agreement include those which are mandatory
or enforceable under domestic law or administrative rulings, or those with which
compliance is necessary to obtain an advantage (such as subsidies or tax breaks).
Figure 8-1 contains a list of measures specifically prohibited by the TRIMs
Agreement. Note that this figure is not exhaustive, but simply illustrates TRIMs
that are prohibited by the TRIMs Agreement. The figure, therefore, calls
particular attention to several common types of TRIMs. We would add that this
figure identifies measures that were also inconsistent with Article III:4 and XI:1
of GATT 1947. Indeed, the TRIMs Agreement is not intended to impose new
obligations, but to clarify the pre-existing GATT 1947 obligations. Under the
WTO TRIMs Agreement, countries are required to rectify any measures
inconsistent with the Agreement, within a set period of time, with a few
exceptions.
Future Challenges
The TRIMs Agreement is only a first step toward eliminating trade distortions.
Although some policies, such as certain export requirements, are not expressly
prohibited by the TRIMs Agreement, it is important that governments
understand the capacity of such measures to distort trade. Disciplines on these
policies will need to be given further consideration in the new investment
m
working group that the WTO Ministerial Conference decided to establish in
December 1996. The TRIMs Agreement is scheduled too
c come up for review
. Agreement and efforts
a
within five years of the entry into force of the WTO
m
should be made to incorporate appropriate new rules to address such additional
policies at that time.
a
n
Members of the OECDy
Efforts to establish multilateral agreement on Investment at the OECD
Negotiations, which began in May 1995 with a goal of presenting a draft to the
OECD Ministerial Council in April 1998, were extended because of an inability
to reach a compromise on liberalization commitments, general exceptions and
considerations to the environment and labour. However, immediately before the
resumption of the negotiations in October 1998, France withdrew from the
negotiations due to the reason that the above-mentioned high degree of disciple
would violate its sovereignty. Thus, it became difficult to continue the
negotiations and at present the negotiations are not conducted.
The following four points about MAI remain to be solved: whether to allow
exceptions to the "standstill" clause for certain specific areas; whether
exceptions to most-favoured-nation treatment should be allowed for regional
economic integration organizations; whether to allow a general exception for
cultural reasons; and whether to include provisions covering environment and
labour issues. In addition, there is no concrete results regarding country-specific
m
o
exceptions.
. c
There are strong needs for some Multilateral Framework on Investment (MFI).
a
The OECD Committee on International Investment and Multinational Enterprise
m
a
(CIME) is
y n
scheduled to discuss, towards the OECD Ministerial Council in May 1999, how
d
to develop the future work programme including the continuation of the
t u
analytical work.
How toS establish a legal frame work for Investment at the WTO
WTO investment disciplines are found in the TRIMs Agreement and the GATS,
but both of these deal with particular areas or particular aspects of investment.
There is currently no comprehensive multilateral legal framework that provides
investment disciplines. As we have noted, the OECD was negotiating a
comprehensive, legally-binding Multilateral Agreement on Investment (MAI)
that would liberalize investment and provide protection for foreign investments.
However, it is said that the level of commitments to be included in the
agreement was too high for developing countries and there were doubts about
how many developing countries would actually join. The WTO Singapore
Ministerial Conference of December 1996 therefore decided to establish a
Working Group on the Relationship between Trade and Investment so that
countries could examine the need for comprehensive investment rules in which
the developing countries participate as well as the developed countries. In the
past two years the Working Group did analyze and review the following three
issues: "implications of the relationship between trade and investment for
development and economic growth," "the economic relationship between trade
and investment," and "stock-taking and analysis of existing international
instruments". The Group reported the results of the review to the General
Council. The WTO General Council decided to extend the Working Group's
m
work programme to further analyze and discuss on investment. Whether to
c o discussed, with a
negotiate comprehensive rules on investment will be further
. at the end of 1999, within
a
view towards the Third WTO Ministerial Conference
y n
continues his work in order to contribute to the General Council‘s discussion.
d
u
t Related Intellectual Property Right(TRIPS)
Trade
S
Desiring to reduce distortions and impediments to international trade, and taking
into account the need to promote effective and adequate protection of
intellectual property rights, and to ensure that measures and procedures to
enforce intellectual property rights do not themselves become barriers to
legitimate trade;
Recognizing, to this end, the need for new rules and disciplines concerning:
(a) the applicability of the basic principles of GATT 1994 and of relevant
international intellectual property agreements or conventions;
(c) the provision of effective and appropriate means for the enforcement of
trade-related intellectual property rights, taking into account differences in
national legal systems;
(d) the provision of effective and expeditious procedures for the multilateral
prevention and settlement of disputes between governments; and
m
o
(e) transitional arrangements aiming at the fullest participation in the results of
c
the negotiations;
.
a
m
Recognizing the need for a multilateral framework of principles, rules and
a
disciplines dealing with international trade in counterfeit goods;
yn
d
Recognizing that intellectual property rights are private rights;
Recognizing u
tthe underlying public policy objectives of national systems for the
Sof intellectual property, including developmental and technological
protection
objectives;
m
1. Copyright and related right
2. Trade marks
a
y n
3. Geographical indications
d
4. Industrial design
t u
5. Patents
Copyright and related rights, the agreement require compliance with the
provision of Berne Convention. Some of a few IPR are given below.
Trade Mark
a
registration of a trademark on other grounds, provided that they do not derogate
m
from the provisions of the Paris Convention (1967).
a
n
3. Members may make registrability depend on use. However, actual use of a
trademark shall not be ay
dbe refused solely on the ground that intended use has not
condition for filing an application for registration. An
u
taken placetbefore the expiry of a period of three years from the date of
application shall not
S
application.
1.The owner of a registered trademark shall have the exclusive right to prevent
all third parties not having the owner's consent from using in the course of trade
identical or similar signs for goods or services which are identical or similar to
those in respect of which the trademark is registered where such use would
result in a likelihood of confusion. In case of the use of an identical sign for
identical goods or services, a likelihood of confusion shall be presumed. The
rights described above shall not prejudice any existing prior rights, nor shall
they affect the possibility of Members making rights available on the basis of
use.
m
2. Article 6bis of the Paris Convention (1967) shall apply, mutatis mutandis, to
o
services. In determining whether a trademark is well-known, Members shall take
c
.
account of the knowledge of the trademark in the relevant sector of the public,
a
including knowledge in the Member concerned which has been obtained as a
m
result of the promotion of the trademark.
a
n
3. Article 6bis of the Paris Convention (1967) shall apply, mutatis mutandis, to
goods or services whichy
d
are not similar to those in respect of which a trademark
u
t indicate a connection between those goods or services and the
is registered, provided that use of that trademark in relation to those goods or
S
services would
owner of the registered trademark and provided that the interests of the owner of
the registered trademark are likely to be damaged by such use.
Exceptions
Requirement of Use
m
as import restrictions on or other government requirements for goods or services
o
protected by the trademark, shall be recognized as valid reasons for non-use.
c
2. When subject to the control of its owner, use.of a trademark by another
person shall be recognized as use of thea
m
trademark for the purpose of
maintaining the registration.
a
Other Requirement
yn
d in the course of trade shall not be unjustifiably
u
The use of a trademark
encumberedtby special requirements, such as use with another trademark, use in
Sform or use in a manner detrimental to its capability to distinguish the
a special
goods or services of one undertaking from those of other undertakings. This will
not preclude a requirement prescribing the use of the trademark identifying the
undertaking producing the goods or services along with, but without linking it
to, the trademark distinguishing the specific goods or services in question of that
undertaking.
Licensing and Assignment
Geographical Indications
m
locality in that territory, where a given quality, reputation or other characteristic
c o
of the good is essentially attributable to its geographical origin.
ythen
designation or presentation of a good that
indicates or suggests that good in question originates in a geographical area
other than the true d
u place of origin in a manner which misleads the public as to
t origin of the good;
S
the geographical
(b) any use which constitutes an act of unfair competition within the meaning of
Article 10bis of the Paris Convention (1967).
1. Each Member shall provide the legal means for interested parties to prevent
use of a geographical indication identifying wines for wines not originating in
the place indicated by the geographical indication in question or identifying
spirits for spirits not originating in the place indicated by the geographical
m
indication in question, even where the true origin of the goods is indicated or the
o
geographical indication is used in translation or accompanied by expressions
c
such as ―kind‖, ―type‖, ―style‖, ―imitation‖. .
a
m
2. The registration of a trademark for wines which contains or consists of a
a
geographical indication identifying wines or for spirits which contains or
consists of a geographical n
invalidated, ex officio ify
indication identifying spirits shall be refused or
3. In S
the case of homonymous geographical indications for wines, protection
shall be accorded to each indication, subject to the provisions of paragraph 4 of
Article 22. Each Member shall determine the practical conditions under which
the homonymous indications in question will be differentiated from each other,
taking into account the need to ensure equitable treatment of the producers
concerned and that consumers are not misled.
m
2. The Council for TRIPS shall keep under review the application of the
o
provisions of this Section; the first such review shall take place within two years
c
.
of the entry into force of the WTO Agreement. Any matter affecting the
a
compliance with the obligations under these provisions may be drawn to the
m
a
attention of the Council, which, at the request of a Member, shall consult with
n
any Member or Members in respect of such matter in respect of which it has not
been possible to find ay
d
satisfactory solution through bilateral or plurilateral
u
t be agreed to facilitate the operation and further the objectives of
consultations between the Members concerned. The Council shall take such
S
action as may
this Section.
5. Where a trademark has been applied for or registered in good faith, or where
rights to a trademark have been acquired through use in good faith either:
(a) before the date of application of these provisions in that Member as defined
in Part VI; or
Measures adopted to implement this Section shall not prejudice eligibility for or
the validity of the registration of a trademark, or the right to use a trademark, on
m
the basis that such a trademark is identical with, or similar to, a geographical
indication.
c o
. to apply its provisions in
a
6. Nothing in this Section shall require a Member
7. A Member may provide that any request made under this Section in
connection with the use or registration of a trademark must be presented within
five years after the adverse use of the protected indication has become generally
known in that Member or after the date of registration of the trademark in that
Member provided that the trademark has been published by that date, if such
date is earlier than the date on which the adverse use became generally known in
that Member, provided that the geographical indication is not used or registered
in bad faith.
8. The provisions of this Section shall in no way prejudice the right of any
person to use, in the course of trade, that person's name or the name of that
person's predecessor in business, except where such name is used in such a
manner as to mislead the public.
m
c o
.
INDUSTRIAL DESIGNS
u
t not extend to designs dictated essentially by technical or
combinations of known
S
protection shall
functional considerations.
2. Each Member shall ensure that requirements for securing protection for textile
designs, in particular in regard to any cost, examination or publication, do not
unreasonably impair the opportunity to seek and obtain such protection.
Members shall be free to meet this obligation through industrial design law or
through copyright law.
Protection
1. The owner of a protected industrial design shall have the right to prevent third
parties not having the owner's consent from making, selling or importing articles
bearing or embodying a design which is a copy, or substantially a copy, of the
protected design, when such acts are undertaken for commercial purposes.
m
3. The duration of protection available shall amount to at least 10 years.
Patents
c o
.
Patentable Subject Matter
a
m
1. Subject to the provisions of paragraphs 2 and 3, patents shall be available for
a
yn
any inventions, whether products or processes, in all fields of technology,
provided that they are new, involve an inventive step and are capable of
d
u
industrial application. (5) Subject to paragraph 4 of Article 65, paragraph 8 of
t paragraph 3 of this Article, patents shall be available and patent
rightsS
Article 70 and
enjoyable without discrimination as to the place of invention, the field of
technology and whether products are imported or locally produced.
(a) diagnostic, therapeutic and surgical methods for the treatment of humans or
animals;
(b) plants and animals other than micro-organisms, and essentially biological
processes for the production of plants or animals other than non-biological and
microbiological processes. However, Members shall provide for the protection
of plant varieties either by patents or by an effective sui generis system or by
any combination thereof. The provisions of this subparagraph shall be reviewed
four years after the date of entry into force of the WTO Agreement.
Rights Conferred
m
1. A patent shall confer on its owner the following exclusive rights:
c o
. using, offering for sale,
(a) where the subject matter of a patent is a product, to prevent third parties not
a
having the owner's consent from the acts of: making,
m
selling, or importing for these purposes that product;
yfrom
having the owner's consent
n the act of using the process, and from the acts
patent is a process, to prevent third parties not
2. Patent owners shall also have the right to assign, or transfer by succession, the
patent and to conclude licensing contracts.
1. Members shall require that an applicant for a patent shall disclose the
invention in a manner sufficiently clear and complete for the invention to be
carried out by a person skilled in the art and may require the applicant to
indicate the best mode for carrying out the invention known to the inventor at
the filing date or, where priority is claimed, at the priority date of the
application.
a
without the authorization of the right holder, including
m
third parties authorized by the government, the following provisions shall be
respected: a
(a) authorization of suchy
n
use shall be considered on its individual merits;
dbe permitted if, prior to such use, the proposed user has
u
t to obtain authorization from the right holder on reasonable
(b) such use may only
S
made efforts
commercial terms and conditions and that such efforts have not been successful
within a reasonable period of time. This requirement may be waived by a
Member in the case of a national emergency or other circumstances of extreme
urgency or in cases of public non-commercial use. In situations of national
emergency or other circumstances of extreme urgency, the right holder shall,
nevertheless, be notified as soon as reasonably practicable. In the case of public
non-commercial use, where the government or contractor, without making a
patent search, knows or has demonstrable grounds to know that a valid patent is
or will be used by or for the government, the right holder shall be informed
promptly;
(c) the scope and duration of such use shall be limited to the purpose for which it
was authorized, and in the case of semi-conductor technology shall only be for
public non-commercial use or to remedy a practice determined after judicial or
administrative process to be anti-competitive;
(e) such use shall be non-assignable, except with that part of the enterprise or
goodwill which enjoys such use;
(f) any such use shall be authorized predominantly for the supply of the
domestic market of the Member authorizing such use;
m
c o
.
a
m
a
yn
d
tu
S
(g) authorization for such use shall be liable, subject to adequate protection of
the legitimate interests of the persons so authorized, to be terminated if and
when the circumstances which led to it cease to exist and are unlikely to recur.
The competent authority shall have the authority to review, upon motivated
request, the continued existence of these circumstances;
(h) the right holder shall be paid adequate remuneration in the circumstances of
each case, taking into account the economic value of the authorization;
(i) the legal validity of any decision relating to the authorization of such use
shall be subject to judicial review or other independent review by a distinct
higher authority in that Member;
m
(j) any decision relating to the remuneration provided in respect of such use
o
shall be subject to judicial review or other independent review by a distinct
c
higher authority in that Member; .
a
m
(k) Members are not obliged to apply the conditions set forth in subparagraphs
a
(b) and (f) where such use is permitted to remedy a practice determined after
n
ymay be taken into account in determining the amount
judicial or administrative process to be anti-competitive. The need to correct
d
anti-competitive practices
t u
of remuneration in such cases. Competent authorities shall have the authority to
S
refuse termination of authorization if and when the conditions which led to such
authorization are likely to recur;
(l) where such use is authorized to permit the exploitation of a patent (―the
second patent‖) which cannot be exploited without infringing another patent
(―the first patent‖), the following additional conditions shall apply:
(i) the invention claimed in the second patent shall involve an important
technical advance of considerable economic significance in relation to the
invention claimed in the first patent;
(ii) the owner of the first patent shall be entitled to a cross-licence on reasonable
terms to use the invention claimed in the second patent; and
(iii) the use authorized in respect of the first patent shall be non-assignable
except with the assignment
Revocation/Forfeiture
Term of Protection
The term of protection available shall not end before the expiration of a period
of twenty years counted from the filing date .
m
Process Patents: Burden of Proof
c o
.
1. For the purposes of civil proceedings in respect of the infringement of the
a
rights of the owner referred to in paragraph 1(b) of Article 28, if the subject
m
a
matter of a patent is a process for obtaining a product, the judicial authorities
u
t produced without the consent of the patent owner shall, in the
least one of the following circumstances, that any identical
S
product when
absence of proof to the contrary, be deemed to have been obtained by the
patented process:
(b) if there is a substantial likelihood that the identical product was made by the
process and the owner of the patent has been unable through reasonable efforts
to determine the process actually used.
2. Any Member shall be free to provide that the burden of proof indicated in
paragraph 1 shall be on the alleged infringer only if the condition referred to in
subparagraph (a) is fulfilled or only if the condition referred to in subparagraph
(b) is fulfilled.
DUMPING
. c
protecting national companies from dumping. The U.S. Antidumping Act of
a
1921, which is enforced by the U.S. Treasury, did not define dumping
m
specifically but instead referred to unfair competition. However, Congress has
apractice that results in "injury, destruction, or
n of American industry." Under this definition,
defined dumping as an unfair trade
y
prevention of the establishment
dimports sold in the U.S. market are priced either at levels
tu
dumping occurs when
that represent less than the cost of production plus an 8 percent profit margin or
Sbelow those prevailing in the producing country.
at levels
Dumping was a major issue in the Uruguay Round of GATT negotiations. Many
countries disapproved of the U.S. system of antidumping laws, in part because
the Commerce Department historically almost always ruled in favor of a U.S.
company filing a complaint. Another issue was the fact that U.S. exporters were
often targeted in antidumping investigations in countries with few formal rules
for due process. The US negotiators hoped to improve the ability of US.
Companies to defend their interests and understand the bases for rulings.
The result of the GATT negotiations was an Agreement on Interpretation of
Article VI. From the US point of view, one of the most significant changes
between the agreement and the 1979 code is the addition of a standard of review
that makes it harder to dispute US. There were also a number of procedural and
methodological changes. In some instances, these have the effect of bringing
regulations more in line with U.S. law. For example, in calculating fair price for
a given product, any sales of the product at below cost prices in the exporting
country are not included in the calculations; inclusion of such sales would have
the effect of exerting downward pressure on the fair price. The agreement also
brought GATT standards into line with US. Standards by prohibiting
governments from penalizing differences between home-market and export-
market prices of less than 2 percent
m
c o
.
As the nature of these issues and regulations suggests, some countries use
a
dumping legislation as a legitimate device to protect local enterprise from
m
predatory pricing practices by foreign companies. In other nations, they
represent protectionism, a devicea
n is that dumping is harmful to the orderly
for limiting foreign competition in a market.
y
The rationale for dumping legislation
d within an economy. Few economists would object to
u dumping. If this were done, it would be an opportunity
development of enterprise
long run or t
continuous
S to take advantage of a low-cost source of a particular good and to
for a country
specialize in other areas. However, continuous dumping rarely occurs; the sale
of agricultural products at international prices, with fanners receiving subsidized
higher prices, is an example of continuous dumping. The type of dumping
practiced by most companies is sporadic and unpredictable and does not provide
a reliable basis for national economic planning. Instead, it may hurt domestic
enterprise.
Recently, there has been a shift in the countries bringing charges of dumping. In
1998, the United States, EU, Australia, and Canada brought approximately one
third or 225 of the cases opened. This is down significantly from the late 1980s
when these same countries accounted for four fifths of all cases.12 The leading
countries bringing suit were South Africa, the United States, India, the European
Union and Brazil.
Nearly 20 percent of the cases were brought against the EU or member countries
followed by China and Korea.
m
International Trade Commission (ITC). Smith Corona had to retile its original
o
complaint; the ITC finally found in its favor in 1980, ordering a 48,7 percent
c
duty on imports of portable typewriters.
.
a
m
However, the duties only applied to typewriters; Brother responded by designing
a
new products with chip-based memory functions. Because this new product was
n
effectively sidestepped y
no longer classified as a typewriter-rather, it was a word processor-Brother
S
shows to what lengths a company will go to get around dumping regulations;
Brother used both product innovation and a new sourcing strategy. Finally, in an
ironic twist, Brother turned the tables on Smith Corona by accusing the latter of
dumping. The rationale: Many of Smith Corona's typewriters are imported from
a plant in Singapore; Brother pointed to its own U.S. plant as evidence that it
was the true U.S. producer.
For a positive proof of dumping to occur in the United States, both price
discrimination and injury must be demonstrated. The existence of either one
without the other is an insufficient condition to constitute dumping. Companies
concerned with running afoul of antidumping legislation have developed a
number of approaches for avoiding the dumping laws. One approach is to
differentiate the product sold from that sold in the home market. An example of
this is. An auto accessory that one company packaged with a wrench and an
instruction book, thereby changing the accessory to a tool. The tariff rate in the
export market happened to be lower on tools, and the company also acquired
immunity from antidumping laws because the package was not comparable to
competing goods in the target market. Another approach is to make non-price-
competitive adjustments in arrangements with affiliates and distributors. For
example, credit can be extended and essentially have the same effect as a price
reduction.
m
Types of Dumping
c o
.
a
m
There are several types of dumping: sporadic, predatory, persistent, and reverse.
a
Sporadic dumping occurs when a manufacturer with unsold inventories warts to
n
y must avoid starting a price war that could
get rid of distressed and excess merchandise. To preserve its competitive
d
position at home, the manufacturer
harm its homeu
tin the example of Asian farmers dumping small chickens in the sea
market. One way to find a solution involves destroying excess
S
supplies, as
or burning them. Another way to solve the problem is to cut losses by selling for
any price that can be realized. The excess supply is dumped abroad in a market
where tee product is normally not sold.
Hitachi was accused of employing predatory pricing for its EPROM (electrically
programmable read-only memory) chips. A memo prepared by the company
urged U.S. distributors to "quote 10 percent below competition (until) the
bidding stops, when Hitachi wins." The Justice Department, after a year along
investigation, dropped the probe because it found that there was insufficient
evidence to prosecute.
m
dumping. It charged in its antitrust suit that major Japanese manufacturers,
c opredatory prices on
through false billing and secret rebates, conspired to set low,
. driving U.S. firms out of
a
TV sets in the U.S. market with the purpose of
a
defended the Japanese firms' cooperation
compulsion." In other words, n
y government's export policy. After sixteen years of
the defendants' cooperation was the result of a
d
compliance with the Japanese
t u
legal maneuvering, the Supreme Court dismissed the conspiracy theory but
S
ordered a trial concerning the dumping charge.
The three kinds of dumping just discussed have one characteristic in common:
each involves charging lower prices abroad than at home. It is possible,
however, to have the opposite tactic-reverse dumping. In order to have such a
case, the overseas demand must be less elastic, and the market will tolerate a
higher price. Any dumping will thus be done in the manufacturer's home market
by selling locally at a lower price.
m
c o
.
a
m
a
yn
d
tu
S
Legal Aspect of Dumping
Illegal dumping occurs when the price charged drops below a specified level.
What are the unfair or illegal price level, and what kind of evidence is needed to
substantiate a charge of dumping? The case of Melex golf carts from Poland
illustrates the difficulty in determining a fair price. The success of Melex in the
United States led to an accusation of dumping.
m
c o
.
The Treasury Department was unable to ascertain whether Melex's U.S. price
a
was lower than prices at home in Poland because Poland has no golf courses and
m
a
no demand for such a product. The cost of production was unsuitable for
yn
determining its fair price. Poland, as a socialist economy, does not let market
d
forces fully dictate the costs of factors of production. For this reason, the 1974
be used for t
u
Trade Act does not allow production costs in a communist/socialist country to
Scomparison purpose.
To determine fair costs, the Treasury began to use a small Canadian
manufacturer's costs as reference prices, only to see the Canadian firm stop
making golf carts. Also, Poland protested that the Canadian firm's production
costs were too high and unsuitable for comparison. The Treasury's next step was
to rely on reference prices of a comparable product from free-market countries.
Mexico and Spain were chosen because they were considered to be similar to
Poland in terms of their level of economic development. Even though Mexico
and Spain do not produce golf carts, they were used anyway to determine what
their production costs would be if they produced such a product. After much
review and discussion, the ruling was that the "constructed" value did not differ
appreciably from Melex's actual price.
The 1980 ruling did not end the matter. The American producers still wanted
Melex to pay the dumping charges for the years 1979 to 1980, and the
Commerce Department's 1992 review imposed a duty of $599,053.51 plus
interest. Melex has continued to fight the case, which has outlasted five U.S.
administrations, Poland's martial law, and the Soviet Union empire.
One item of evidence of dumping occurs when a product is sold at less than fair
m
value. The Commerce Department, for example, made a final determination that
c
imports of certain small-business telephone systems andosubassemblies from
. at less than fair value.
a
Japan and Taiwan were being sold in America
a
determinations and found injury to industries
imports. The Commission'sn
y to offset their price advantage.
injury finding led to antidumping duties being
d
placed on imported products
u
t of dumping evidence is a product sold at a price below its
S
Another example
borne-market price or production cost. The United States relies on the official
U.S. trigger price, which is designed to curb dumping by giving an early signal
of an unacceptable import price. In the case of steel, the trigger price sets a
minimum price on imported steel that is pegged to the cost of producing steel in
Japan. According to the General Accounting Office, some 40 percent of all
imports at one time were priced below the trigger price.
To provide relief, the Antidumping Act requires the Department of Commerce
to impose duties equal to the dumping margin. The antidumping duty is based
on the amount by which the foreign market value or constructed value exceeds
the purchase price or an exporter's sale price.
How to Dump (Legally and Illegally)
. c
Furthermore, it gave its U.S. customers a rebate equal to, the difference between
a
the nominal exchange rate and the actual exchange rate, and the calculations
m
were made after product entry. These illegal rebates totaled, $1.3 million
between 1978 and 1981. Anothera
claims. Mitsui honored falsen
deceptive method involved the use of damage
Sears was similarly indicted for conspiring with Sanyo and Toshiba to file false
customs invoices involving the-importation of Japanese TV sets between 1968
and 1975. To avoid customs penalties on low-priced Japanese sets whose prices
were below Japanese market prices, Sears certified the purchase prices to be
higher than what was actually paid. For two of those seven years, Sears
overstated Toshiba's price by $1.66 million and Sanyo's prices by $7 million.
To prevent Japanese firms from dumping their EPROM chips in the U.S.
market, the United States and Japan have established "fair market values" or
minimum prices for these chips. But American chip makers asserted that the
Japanese violated the trade agreement by dumping chips in Hong Kong, Taiwan,
and Singapore and by selling chips to Korean users at fair market value but with
rebate. The problem was that these chips could find their way to the U.S. market
or that U.S. semiconductor customers might move their manufacturing
operations to these other markets to take advantage of lower chip prices.
Without doubt, dumping is a risky practice that can cause a great deal of
embarrassment, in addition to the payment of large financial penalties. Thus, a
preferable strategy is to use other means to legally overcome dumping laws. One
m
o
method that can help avoid charges of dumping is to differentiate the exported
. c
item from the item being sold in the home market. By deliberately making the
a
home product and its overseas version not comparable, there is no home-market
m
price that can be used as a basis for price comparison. This may be one reason
atheir automobiles under new or different
n method used to circumvent dumping laws is
why Japanese automakers market
y
names in the United States. Another
to provide financingd
tu
terms that can have the same effect as a price reduction.
S
The dumping problem can also be overcome if the production of a product,
rather than its importation is carried out in the host country. This option has
become necessary for Japanese manufacturers, who have no desire to lower
prices in Japan because they do not have to contend with foreign competitors.
The high prices at home, however, work to the disadvantage of Japanese
manufacturers because it is easy to prove that they are engaged in dumping in
the U.S. market.
COUNTERTRADE
m
Counter trade, one of the oldest forms of trade, is a government mandate to pay
for goods and services with something other than cash. o
c It is a practice, which
requires a seller as a condition of sale, to commit.contractually to reciprocate
a
mtrade.
and undertake certain business initiatives that compensate and benefit the buyer.
a
In short, a goods-for-goods deal is counter
n
ymost cases, there are multiple deals that are separate
Unlike monetary trade, suppliers are required to take customers' products for
d
their use or for resale. In
u
t products, and such products may move at different points in time
yet related, and a contract links these separable transactions. Counter trade may
S
involve several
while involving several countries. Monetary payments‘ may or may not be part
of the deal.
There are three primary reasons for counter trade: (1) counter trade provides a
trade financing alternative to those countries that have international debt and
liquidity problems, (2) counter trade relationships may provide LDCs and
MNCs with access to new markets, and (3) counter trade fits well conceptually
with the resurgence of bilateral trade agreements‘ between governments. The
advantages of counter trade cluster around three subjects: market access, foreign
exchange, and pricing. Counter trade offers several advantages. It moves
inventory for both a buyer and a seller. The seller gains other benefits, too.
Other than the tax advantage, the seller is able to sell the product at full price
and can convert the inventory to an account receivable. The cash-tight buyer that
lacks hard currency is able to use any cash received for other operating
purposes.
There are several types of counter trade, including barter, counter purchase,
compensation trade, switch trading, offsets and clearing agreements.
m
o
1. Barter- Barter, possibly the simplest of the many types of counter trade, is a
. c
onetime direct and simultaneous exchange of products of equal value (i.e., one
a
product for another). By removing money as a medium of exchange barter
m
makes it possible for cash-tight countries to buy and sell. Although price must
aprice is only implicit at best in the case of
ncoal was exchanged for the construction of a
be considered in any counter trade,
y
barter. For example, Chinese
dand Polish coal was exchanged for concerts given by a
tu
seaport by the Dutch,
Swedish band in Poland. In these cases. the agreement dealt with how many tons
S
of coal was to be given by China and Poland rather than the actual monetary
value of the construction project or concerts. It is estimated that about half of the
U.S. corporations engage in some form of barter primarily within the local
markets of the United States.
2. Counter purchase (Parallel Barter)- Counter purchase occurs when there
are two contracts or a set of parallel cash sales agreements, each paid in cash.
Unlike barter which is a single transaction with an exchange price only implied.
a counter purchase involves two separate transactions-each with its own cash
value. A supplier sells a facility or product at a set price and orders unrelated or
non-resultant products to offset the cost to the initial buyer. Thus, the buyer pays
with hard currency, whereas the supplier agrees to buy certain products within a
specified period. Therefore money does not need to change hands. In effect, the
practice allows the original buyer to earn back the currency. GE won a contract
worth $300'million to build aircraft engines for Sweden's JAS fighters for cash
only after agreeing to buy Swedish industrial products over a period of time in
the same amount through a counter purchase deal. Iraq persuaded the New
Zealand Meat Board to sell $200 million worth of frozen lamb for a purchase of
the same value of crude oil. Brazil exports vehicles, steel, and farm products to
oil-producing countries from which it buys oil in return.
m
3. Compensation Trade (Buyback)-A compensation trade requires a company'
c
to provide machinery, factories, or technology and to buy oproducts made from
. counter purchase, which
a
this machinery over an agreed-on period. Unlike
a
highly related. Under a separate agreement
supplier agrees to buy partn
y sold sewing machines to China and received
of the plant's output for a number of years. For
d
example, a Japanese company
payment in theu
t form of 300,000 pairs 'of pajamas. Russia welcomes buyback.
n
agreed-on value or volume of trade tabulated or calculated in nonconvertible
"clearing account units."y
dimports and payment of copiers. Rank Xerox decided to
For example, the former Soviet Union's rationing of
u
hard currency limited
circumvent t
S
the problem by making copiers in India for sale to the Soviets under
the country's "clearing" agreement with India. The contract set forth goods, ratio
of exchange, and time length for completion. Any imbalances after the end of
the year were settled by credit into the next year, acceptance of unwanted goods,
payment of penalty, or hard currency payment. Although nonconvertible in
theory, clearing units in practice can be sold at a discount to trad-ing specialists
who use them to buy salable products.
Problems and Opportunities
Although counter trade is a common and growing practice, it has been criticized
on several fronts. First, counter trade is considered by some as a form of
protectionism that poses a new threat to world trade. Such countries as Sweden,
Australia, Spain, Brazil, Indonesia, and much of Eastern Europe demand
reciprocity in order to impose a discipline on their balance of payments. In other
words, imports must be offset by exports. Indonesia links government import
requirements in contracts worth more than Rp. 500 million to the export of
Indonesian products, other than oil and natural gas, in an equivalent amount to
the foreign-exchange value of the contract. Mexico took a hard line in 1981
m
o
against foreign automakers by ordering them to earn back hard currency if they
. c
wanted to stay in business with Mexico. As a result, VW de Mexico had to
a
purchase and export Mexican coffee. Nissan Mexicana agreed to accept coffee,
y
export nearly $21 billion worth
d parts for their Brazilian plants. Despite this charge,
tuthat counter trade does not necessarily restrict the overall trade
right to import duty-free
there is evidence
S
volume.
Third, counter trade is alleged to increase overhead costs and ultj.n1ately the
price of a product. Counter trade involves time, personnel, and expenses in
selling a customer's product-often at a discount. If another middleman is used to
dispose of the product a commission must also be paid. Because of these
expenses, a selling company has to raise- the price of the original order to
compensate for such expenses as well as for the risk of taking another product in
return as payment. The fact that the goods are saleable--either for other goods
or, in the end, for cash somewhere else means that additional and probably
unnecessary costs must be incurred. As explained by Fitzgerald, "Counter trade
m
o
requirements, like any trade restrictions, increase the cost of doing business.
. c
These cost cannot be passed into the international market but must be borne
a
within the country imposing the requirements." It is believed that barter
m
transactions are responsible for reducing Russia's revenues by 500 billion rubles.
a
n
Related to this charge of increasing costs is the problem of marketing unwanted
merchandise that may y
d its customer's goods if it does not want to lose business
remain unsold? A company may have to take on the
u
added job of marketing
t are willing to do so. GE lost a major sale of CAT scanners to
S
to rivals who
Austrian hospitals after Siemens agreed to preserve 4,000 jobs by stepping up
production of unrelated electronic goods within its Austrian plants. McDonnell
Douglas was able to secure a contract to sell 250 planes to former Yugoslavia
only after agreeing to market such Yugoslav goods as hams and other foods,
textiles, leather goods, wine, beer, mineral water, and tours. The company had a
difficult time selling the $5 million worth of hams and finally did so to its own
employees and suppliers. With Regard to the Yugoslavian tours, the best the
company could do was to offer the trips as incentives to employees.
Financing, essential in virtually all types of conventional transactions, becomes
more complicated in the case of counter trade this is especially true when the
sale of one product is contingent on the purchase of an unrelated product in
return. Understandably, banks may hesitate to provide credit for such a deal
because of their concern that the exporter may not be able to profitably dispose
of the product given to the exporter as payment.
. c
An examination of counter trade literature found that an overwhelming number
a
of the published articles were theoretical rather than empirical. There are a few
m
a
empirical studies, however, that have shed some light on the practice of counter
commodity terms d
trade, have these characteristics:
The results of one study dispel some widely held views about counter trade.
First the relationship between a country's credit rating and its propensity to
counter trade is not as strong as commonly believed. Second, buyback and
counter purchase are substitutes .to foreign direct investment. Third, there is a
surprisingly large volume of counter trade between developing countries
themselves. Fourth, each counter trade type seems to have its own separate
motivation. Barter -allows exchange without the use of money and explicit
prices. Barter is therefore useful in order to bypass: (1) exchange controls, (2)
public or private price controls, and (3) a creditors' monitoring of imports.
Those firms that tend to benefit from counter trade are the following: (1) large
firms that have extensive trade operations from large, complex products; (2)
vertically integrated firms that can accommodate counter trade take backs; and
(3) firms that trade with countries that have inappropriate exchange rates,
rationed foreign exchange, import restrictions, and importers inexperienced in
assessing technology or in export marketing. In contrast firms whose
characteristics are the opposite of those just enumerated are likely to encounter
significant barriers to counter trade operations and to receive few benefits.
m
In general, the U.S. government is opposed to government-mandated counter
o
trade. However, recognizing that counter trade is a fact of life, the U.S.
c
.
government has maintained a hands-off policy toward counter trade
a
arrangements that do not have government intervention or those American
m
a
exporters choose to pursue. It does not oppose participation by American firms
u
counter trade in their
t
S
Interestingly, the U.S. government itself has published a guide on counter trade
practices so that U.S. firms can take advantage of marketing opportunities in the
former Soviet Union. The irony is that the Russian government, seeking hard
currency earnings, now appears to prefer cash transactions and has begun to
discourage counter trade transactions of marketable commodities. Still, those
Russian products that do not have a ready market probably will still require
some form of counter trade.
E-commerce transactions
What is E-commerce?
. c
electronic data exchanges and on-line trading of financial instruments.
a
The OECD documents on e-commerce in a somewhat more restricted manner as
m
a
commercial transactions between individuals and organisations, based on the
n
processing or transmissions of digitised data units, sound, and visual images,
which are carried out y
dwith a gateway to open networks. This more specific
over open networks (like internet) or over a closed
u
network (like minite)
t therefore exclude electronic data interchange (EDI), carried out
S networks, if such EDls are being used by themselves, without access
definition would
over closed
to an open network (e.g. credit cards used over a closed network, connecting
specified merchants with a card organisation).
m
the author of the transactions arises in one country (called the Home State) and
o
the sites of the transactions is in the other country (Host State).
c
. in both countries by virtue
of 'personal attachment' to the transfer (in thea
Income arises out of such transaction is eligible to tax
d
a Double Taxation Avoidance
t
concerned. The u problematic issues arising in respect of e-commerce transactions
S
are as follows:
m
source can be traced. as the delivery has to cross the other territory through the
o
customs or postal barrier. The destination also will be known from the shipping
c
.
address. Where the seller may be located in a tax-heaven country and there is no
a
treaty for avoidance of taxation, it will be difficult to enforce tax laws on the
m
a
non-resident business. In such cases, the natural option should be to tax the
yinn
resident as the agent, especially where the non-resident cannot be reached. The
u
accounts but in taxing
transactions,tlike the persons liable to pay the 'use tax' in US. With the
S
development of WAP (Wireless Application Protocol) which integrates mobile
telephony with the Internet, e-commerce will be taken over by M-commerce
(Mobile Commerce). This makes the place of origin of business invisible thus
adding complication to the existing scenario and is a real challenge to domestic
jurisprudence.
Legal difficulty:
Till now all cross-border commercial transactions have to cross the customs
m
barrier or the postal barrier. All trade and commerce are operated in a physical
o
world and in terms of tangible goods. Hence, there is a check on these
c
.
transactions, though smuggling remains outside the scope of any control. Even
a
in the present situation, the tax authorities are unable to fully grapple with the
m
a
problem of myriad ways of tax evasion. In e-commerce transactions, the
n be applied.
contracting parties are in two different states and, therefore, the question would
ywould
d
arise as to which state law
t u
Nature of contract:
Taxable jurisdiction:
The taxable jurisdiction of any country covers its national boundary. Besides
this the territorial jurisdiction includes territorial sea and airspace above as per
m
the territorial waters. continental shelf, exclusive economic zone and other
o
Maritime Zones Act, 1976. Each one extends to specified nautical miles from
c
.
the base line. The following are the limits indicated therein:
a
m
(i) Territorial Water -12 nautical miles from the nearest point of appropriate base
line.
a
y n
(ii) Contiguous Zone - 24 nautical miles beyond and adjacent to the territorial
dline.
waters from the base
(iv) Exclusive Economic Zone is an area beyond and adjacent to the territorial
waters extending to 200 nautical miles from the base line.
But electronic commerce takes place through satellite and the server can be in
any part of the globe. It can in all probability be in a tax-haven country. Another
condition for taxing the income arising or accruing beyond the taxable territories
in the physical residence of the taxpayer for 182 days or more. This becomes
meaningless with the Internet access. The information highway provides
numerous visits to another jurisdiction outside the control of border mechanism.
How business is transacted through e-commerce.
Divergence however arises in two dimensions - the business methods and the
business concepts. The first area, which is very different, viz. the means of
doing business. is analysed. In e-commerce there are three distinct means of
doing business: electronic advertising, electronic sales and electronic delivery.
The presence of anyone or more of these is sufficient to characterise the
business as e-commerce.
m
c o
.
These are separately discussed below:
Electronic advertising: a
m
a
Advertising is done on the open networks, through websites. Potential customers
n
access the websites and obtain the information they need which enables them
ythe transaction is suitable cases. If the e-commerce
dto putting up a website alone, then the rest of the
thereafter to proceed with
t u
business is restricted
S
transaction is completed through traditional means; i.e. the placing of orders by
telephone or mail, the making of payment by cheque and credit card and the
delivery of goods through a carrier, the telephone etc. being referred to as
intermediaries.
Electronic sales:
This is done through 'smart' resources which enable the potential customer to
place an order on the internet. The payment is effected through a closed network
by means of credit cards.
Electronic delivery:
This is of course possible only for goods and services that can be fully digitised,
but this range is quite wide and ever expanding. Texts, visual materials. audio
materials and computer software are digitised. Therefore products like journals,
books, music, plans, designs, drawings and games to mention a few, would be
goods available in digitised form. Besides goods, services like diagnostic
services, could also be available in digitised form. Therefore a whole host of
goods and services could be delivered electronically.
The Committee of Fiscal Affairs of the OECD has been actively working on
taxation issues relating to e-commerce. The committee has developed the
m
taxation framework conditions setting forth the governing principles in relation
o
to e-commerce. The key conclusion was that the taxation principles that guide
c
.
Governments in relation to conventional commerce, should also guide them in
a
relation to e-commerce. It was postulated that this would be possible only by
m
a
adapting and adopting the existing principles to a-commerce situations.
d
context of international tax
(2) the manner in which payments for digitised products are to be characterised.
Situation B –
Server on host country soil: A server is a system which carries out activities
m
o
initiated by an end-user's computer. The question whether a server can be
c
more complicated. It is possible that the enterprise.that operates the server may
considered whether a server can be considered as a permanent establishment is
a
m
be different from the enterprise that carries on business through the website. The
aprovider (ISP) does not give website owner
n operation. The server's location is not at that
use of a particular internet service
y
the right of control over the server's
S
In such a situation,
business.
On the other hand, if the enterprise itself owns or leases and operates the server,
and the computer equipment is fixed, and business is carried on through the
server, it could be construed to be a permanent establishment. Therefore what is
essential to be considered in this issue, is not merely whether a server exists or
host country soil. but also what the value as well as extent of its operations are.
As the permanent establishment concept deals not only with permanence and a
geographical link with the host soil, but also with the actual carrying on of the
business, the values and extent of the operations carried out by the server
becomes important. We now consider separately the above points.
'Nature of operation –
The nature of operations could have a very wide range. The range could profess
from being a mere provider of information, to being a forwarding address to
acting as a warehouse for digitised goods, to contributing directly to
productivity and value creation, thereby realising profits. In a situation where
the server acts as a mere provider of information it cannot be considered to be a
permanent establishment. At the other end, where it contributes to productivity,
the server will become a permanent establishment for distinctions which falls in
m
between there two entrances, it would be necessary to go to the next step of
examining the extent of operations.
c o
.
a
Extent of operations
m
In the extent of operations, as well, there could be a wide range of activities.
a
server would be simply located on host country soil with skeletal support
y n
services, or it could be a server with multiple services, ,or it could be a server
which carries on d
the complete set of operations. In the last situation, there
would clearlyu
t be a permanent establishment.
SC –
Situation
. c
enterprise, and dealing With the foreign enterprise at arm's length price. The
a
issue therefore translates to one for determining the transfer price between the
m
foreign enterprise and permanent establishment, and rewriting the transaction
between the two, at arm's length.a
yn
d
Determination of the nature of income :
S
also the case in conventional commercial transactions, depends on the
characterisation of the income. The characterisation of income is relevant
because different types of income are taxed differently. Once this is identified,
the existing rules may be adopted and adapted to the e-commerce transactions.
. c
thereof. The payment for this would then be characterised as a sale consideration
rather than as a royalty.
a
m
a
The principles of adopting and adapting postulated by the OECD and the US
yn
treasury unable a proper determination of the character of income in most cases.
is discussed below:d
However, the problem arises in the case of transactions involving software. This
t u
S
Transactions involving software:
When the buyer tears open the packaging, this act is tantamount to his signing
the agreement or licence. By doing so, the buyer (licensee) accepts the terms of
the licence, then he agrees to use the software only at that one work station, to
not make copies except for archival purposes, to not alter the contents, etc. other
than a licence. When it comes to taxation of such transactions the
characterisation of the income would become extremely relevant. If for instance
the transactions were to be treated as a sale transaction, and the title is
transferred outside the buyer's country, the transaction would not be subject to
host country taxation in the buyer's State; this is because there would be no
permanent establishment of the 'seller' of the software in the buyer's State, and
therefore no subjection to Host
m
State taxation. If on the other than the transactions were to be treated as one of
o
licensing, irrespective of the fact that there might be no permanent establishment
c
.
in the buyer's State, the amount paid by the buyer would, (according to most
a
double taxation avoidance agreements and most domestic tax laws), be
m
a
considered not as a sale consideration, but after a licence fee constituting a
yn
royalty and this would therefore be subject to Host State taxation on the basis of
d
the Source Rule, the payer of the consideration being a resident of the Host
State.
t u
S
Let us now examine this issue in the context of
Indian law.
ii) to issue copies of the work to the public not being copies already in
circulation:
iv) to make any cinematograph film or sound recording in respect of the work;
vii) to do, in relation to a translation or an adaptation of the work, any of the acts
specified in relation to the work in sub-clause
m
b) in the case of a computer programme,
c o
.
i) to do any of the acts specified in clause
a
m
a
ii) to sell or give on commercial rental or offer for sale or for commercial rental
n
any copy of the computer programme:
y
d
Provided that such commercial rental does not apply in respect of computer
t
programme where u the programme itself is not the essential object of the rental.
. c
rights, but these parameters are rational and not arbitrary.
a
In the case of a copyrighted article, the source code is generally not given, which
m
a
means that it is only use of the copyrighted article, that is possible. Nothing
If on the other hand, only insignificant benefits and burdens of ownership have
been transferred, and then this is treated as a rental income.
Unit IV
m
4. To understand the legal safeguards available for payment defaults
u
tare important, but at the end of the day, the company must get paid.
Export financing is often a key factor in a successful sale. Contract negotiation
S
and closure
• The need for financing to make the sale. In some cases, favorable
payment terms make a product more competitive. If the competition offers better
terms and has a similar product, a sale can be lost. In other cases, the buyer may
have preference for buying from a particular exporter, but might buy the product
because of shorter or more secure credit terms.
• The length of time the product is being financed. This determines
how long the exporter will have to wait before payment is received and
influences the choice of how the transaction is financed.
• The risks associated with financing the transaction. The riskier the
transaction, the harder and more costly it will be to finance. The political and
m
economic stability of the buyer's country can also be an issue. To provide
c o
financing for either accounts receivable or the production or purchase of the
. methods of payment, a
letter of credit (possibly confirmed), or exporta
product for sale, the lender may require the most secure
m
credit insurance or guarantee.
For help in determining which financing options may be available or the most
beneficial to the exporting endeavors, the following sources may be consulted:
• The banker;
Foreign buyers often press exporters for longer payment periods. While it is true
that liberal financing is a means of enhancing export competitiveness, exporters
need to weigh carefully the credit or financing they extend to foreign customers.
Moreover, the extension of credit by the seller to the buyer is more common
outside the United States. Indian sellers who are reluctant to extend credit may
face the possibility of the loss of the sale to their competitors.
A useful guide for determining the appropriate credit period is the normal
commercial terms in the exporter's industry for internationally traded products.
m
Buyers generally expect to receive the benefits of such terms. For off-the-shelf
c o
items like consumer goods, chemicals, and other raw materials, agricultural
. commercial terms range
aallowance may have to be made
commodities, and spare parts and components, normal
a
for longer shipment times than are found
n
goods.) Custom-made ory
buyers are often unwilling to have the credit period start before receiving the
warrant longeru
d high-value capital equipment, on the other hand, may
S
they tend to be precedent for future sales, so the exporter should review with
special care any credit terms extended to first-time buyers.
Exporters should follow the same careful credit principals they follow for
domestic customers. An important reason for controlling the credit period is the
cost incurred through use of working capital or through interest and fees. If the
buyer is not responsible for paying these costs, then the exporter should factor
them into the selling price. The exporter also should recognize that longer credit
periods may increase any risk of default.
Customers are frequently charged interest on credit periods of a year or longer
but less frequently on short-term credit (up to 180 days). Most exporters absorb
interest charges for short-term credit unless the customer pays after the due date.
n
denominations. Exporters should also determine whether they incur financial
liability should the buyery
d
default.
t u
Commercial Banks
A logical first step for an exporter seeking to finance short-term export sales is
to approach the local commercial bank with which it already does business. If
the bank previously has extended credit to the exporter, the bank will be familiar
with the exporter's financial standing, credit need, repayment record, and ability
to perform. The bank may be willing to raise the overall limit on an existing
working capital line of credit, expand its scope to cover export transactions, or
approve a separate line specifically adapted to export-related transactions such
as discounting.
m
The exporter should visit the bank's international department, to discuss export
o
plans, available banking facilities, and applicable charges. The exporter may
c
.
wish to inquire about such matters as: fees for amending or confirming a letter
a
of credit; processing drafts; and about the bank's experience in working with
m
a
Overseas Government agencies that offer export financing assistance. Generally,
n
the bank's representative handing the exporter's account will not be lodged in the
international department.y
working d
It is in the exporter's best interest to create and foster a
close
t u relationship with the international department.
S
The responsibility for repaying a working capital loan ordinarily rests with the
exporter, even if the foreign buyer fails to pay. The bank takes this contingency
into account in deciding on an export working capital line of credit. It is to the
benefit of the bank and the exporter to improve the quality of the export
receivables by using letters of credit by making use of credit insurance, or by
using Export-Import Bank or Export Credit Guarantee Corporation of India
Limited (ECGC).
An exporter shipping capital goods may want the commercial bank to make
medium-term loans directly to the foreign buyer to finance the sale. Such loans
are available for well established foreign buyers in more stable markets, but
where there is an element of risk, the bank may require a standby letter of credit,
recourse on the exporter in case of default, or similar repayment reinforcement.
As another course of action, the exporter's bank may be willing to buy, or lend
against, time drafts from an exporter that a creditworthy foreign buyer has
m
accepted or agreed to pay at a specified future date. This in effect converts the
c o
time draft into immediate cash. The amount received by the exporter is less than
the face value of the draft. The difference, called a .
and fees that the bank charges for holding the a
"discount," represents interest
m
an export order in the seller's country and makes payment for the goods in the
o
currency of that country. Among the items eligible for confirmation (and thereby
c
.
eligible for credit terms) are the goods themselves; inland, air, and ocean
a
transportation costs; forwarding fees; custom brokerage fees; and duties. For the
m
a
exporter, confirming means that the entire export transaction from plant to end
yn
user can be fully coordinated and paid for over time. Although confirming is
t u
These three financing
S
available than commercial bank financing. Nevertheless, where offered locally,
they help fill a financing gap for exporters.
Export Intermediaries
Foreign buyers of capital goods may make down payments that reduce the need
for financing from other sources. In addition, buyers may make progress
payments as the goods are completed, which also reduce other financing
requirements. Letters of credit that allow for progress payments upon inspection
by the buyer's agent or receipt of a statement by the exporter that a certain
percentage of the product has been completed are not uncommon.
In addition, suppliers may be willing to offer terms to the exporter if they are
m
comfortable that they will receive payment. Suppliers may be willing to accept
c o
assignment of a part of the proceeds of a letter of credit or a partial transfer of a
. only a single transfer or
aexporter should investigate the
transferable letter of credit. However, some banks allow
Several governmentd
u agencies, as well as a number of state and local ones, offer
programs totassist exporters with their financing needs. Some are guarantee
Sthat require the participation of an approved lender; others provide
programs
loans or grants to the exporter.
t u
under this program,
S
portion - generally, 90 percent of the loan - thereby reducing the lender's overall
risk. The Working Capital Guarantee Program can be used either to support
ongoing export sales or to meet a temporary cash flow demand arising from a
single export transaction.
The loan principal can be up to 100 percent of the value of the collateral put up
by the exporter, a relatively generous percentage. Eligible collateral includes
foreign receivables, exportable inventory purchased with the proceeds of the
loan, and goods in production. The term of the guaranteed line of credit is
generally one year, but a longer period of renewals may be arranged.
Post-export Financing
m
supporting short-term export credit.
c o
ECGC policies for exporters include the Small Business Policy, Single-Buyer
.Umbrella Policy enables an
afor a group of exporters. With
Policy, and Multi-Buyer Policy. Another policy, the
m
administrator to handle most administrative duties
a
prior written approval, an exporter can assign the rights to any proceeds to a
y n
lender as collateral for financing.
Increasingly, the MDBs are providing funding to private sector entities for
private projects in developing countries. A growing number of companies and
project developers around the world are taking advantage of this funding, which
is secured based on the financial, economic, and social viability of the projects
in question.
m
The MDBs have been traditionally been heavily involved in infrastructure and
o
poverty-alleviation projects. All of the banks support projects in the following
c
.
sectors: agriculture, energy, environment, finance, industry, transportation,
telecommunications, health, education, a
urban development, tourism,
m
a
microenterprise, and public sector, as well as other types of economic reform.
n
All of the banks provide some funding for private ventures.
y
d
The design and execution of MDB-financed public sector projects affords
t u
lucrative business opportunities for suppliers, consultants, and contractors from
S
MDB member countries. Many of the goods and services required for these
projects are procured or purchased through International Competitive Bidding
(ICP) or open tendering. These methods require notification to the international
community that a contract is being let; the notification is to provide potential
bidders with timely and adequate notification of a purchaser's requirements and
an equal opportunity to bid.
The MDBs also provide debt, equity, and guarantee financing to eligible private
ventures in developing countries. These funds, offered on commercial terms, can
be accessed directly by private project sponsors and do not require a government
guarantee.
Several cities and states have funded and operate export financing programs,
including preshipment and postshipment working capital loans and guarantees,
accounts receivable financing, and export insurance. To be eligible for these
programs, an export sale must generally be made under a letter of credit or with
credit insurance coverage. A certain percentage of state or local content may
also be required. However, some programs may require only that certain
facilities, such as a state or local port, be used; therefore, exporters may have
m
several options.
y
another country's currency.4nAs he further observes, it "involves the
investigation of thedmethod by which the currency of one country is exchanged
There are different interpretations of the term foreign exchange, of which the
following two are most important and common:
a
market is the transfer of purchasing power from one
Mail Transfer: just as it is possible to transfer funds from a bank account in one
centre to an account in another centre within the country by mail, Mail Transfer
can accomplish international transfers of funds. These are usually made by air
mail.
m
o
Cheques and Bank Drafts: International payments may be made by means of
c
.
cheque and bank drafts. The latter is widely used. A bank draft is a cheque
a
drawn on a bank instead of a customer's personal account. It is an acceptable
m
means of payment when the person tendering is not known, since its value is
a
yn
dependent on the standing of a bank which is widely known, and not on the
credit-worthiness of a firm or individual known only to a limited number of
d
people.
u
t of Exchange: A bill of exchange is an unconditional order in
S
Foreign Bill
writing, addressed by one person to another, requiring the person to whom it is
addressed to pay a certain sum on demand or on a specified future date.
There are two important differences between inland and foreign bills. The date
on which an inland bill is due for payment is calculated from the date on which
it was drawn, but the period of a foreign bill runs from the date on which the bill
was accepted. The reason for this is that the interval between a foreign bill being
drawn and its acceptance may be considerable, since it may depend on the time
taken for the bill to pass from the drawer's country to that of the acceptor. The
second important difference between the two types of bill is that the foreign bill
is generally drawn in sets of three, although only one of them bears a stamp, and
of course, one of them is paid.
m
exchange is necessarily employed, but the distinctive feature of the documentary
o
credit is the opening by the importer of a credit in favour of the exporter, at a
c
bank in the exporter's country.
.
a
m
To illustrate the use of the documentary credit, let us assume that Menon of
a
Cochin intends to purchase goods from Ronald of New York and that the terms
of the deal have been agreed n
y stages:
upon by them. Then the transaction would be
d
carried through the following
(b) Ronald may now dispatch the goods to Menon at Cochin, draw a bill of
exchange on the SBI and then present the documentary bill to the New York
branch of the SBI. If all the documents are in order, the bank will pay Ronald.
The bank will charge for its services, and will also charge interest if the bill is
not payable at sight.
(c) The New York branch of the SBI then sends the documentary bill to its
Cochin office for payment or acceptance, as the case may be, by Menon. When
the bill is paid, Menon's account will be debited by that amount. Every thing
being in order, the banker will release the bill of lading from the bill to enable
Menon to claim the goods on their arrival at the Cochin port.
m
o
Spot and Forward Exchanges
. c
The term spot exchange refers to the class of foreign exchange transaction which
a
requires the immediate delivery, or exchange of currencies on the spot. In
m
practice, the settlement takes place within two days in most markets. The rate of
a
yn
exchange effective for the spot transaction is known as the spot rate and the
market for such transactions is known as the spot market.
d
u
t specified future date of a specified amount of foreign currency
The forward transaction is an agreement between two parties, requiring the
S
delivery at some
by one of the parties, against payment in domestic currency by the other party, at
the price agreed upon in the contract. The rate of exchange applicable to the
forward contract is called the forward exchange rate and the market for forward
transactions is known as the forward market.
With reference to its relationship with the spot rate, the forward rate may be at
par, discount or premium.
At Par: If the forward exchange rate quoted is exactly equivalent to the spot rate
at the time of making the contract, the forward exchange rate is said to be at par.
At Premium: The forward rate for a currency, say the dollar, is said to be at a
m
o
premium with respect to the spot rate when one dollar buys more units of
c
another currency, say rupee,
.
in the forward than in the spot market. The
a
premium is usually expressed as a percentage deviation from the spot rate on a
per annum basis. m
a
n
At Discount: The forward rate for a currency, say the dollar, is said to be at
discount with respect toy
d
the spot rate when one dollar buys fewer rupees in the
u
t from the spot rate on a per annum basis.
forward than in the spot market. The discount is also usually expressed as a
S
percentage deviation
The forward exchange rate is determined mostly by the demand for and supply
of forward exchange. Naturally, when the demand for forward exchange exceeds
its supply, the forward rate will be quoted at a premium and, conversely, when
the supply of forward exchange exceeds the demand for it, the rate will be
quoted at discount. When the supply is equivalent to the demand for forward
exchange, the forward rate will tend to be at par.
Futures
Options
m
o
While the forward or futures contract protects the purchaser of the contract from
c
. For example, if an
the adverse exchange rate movements, it eliminates the possibility of gaining a
a
windfall profit from favourable exchange rate movements.
Swap Operation
m
currency for forward delivery, are technically known as swaps or double deals,
as the spot currency is swapped against forward.
c o
.
a
Arbitrage
m
Arbitrage is the simultaneous buying and selling of foreign currencies with the
a
intention of making profits from the differences between the exchange rate
yn
prevailing at the same time in different markets.
d
u
For illustration, assume that the rate of exchange in London is £ 1 = $2 while in
New York £t1 = $2.10. This presents a situation wherein one can purchase one
poundS
sterling in London for two dollars and earn a profit of $0.10 by selling the
pound sterling in New York for $2.10. This situation would, hence, lead to an
increase in demand for sterling in London and consequently, an increase in the
supply of sterling in New York. Such operations, i.e., arbitrage, could result in
equalizing the exchange rates in different markets (in our example London and
New York).
Arbitrage in foreign currencies is possible because of the ease and speed of
modern means of communication between commercial centres throughout the
world. Thus, an operator in New York might buy dollars in Amsterdam and sell
them a few minutes later in London.
The effect of arbitrage, as has already been mentioned, is to iron out differences
in the rates of exchange of currencies in different centres, thereby creating,
theoretically speaking, a single world market in foreign exchange.
INTERNATIONAL BANKING
m
Bank of China (lCBO UBS, Deutsche Bank etc. Most of the world's 50 largest
c o
banks are from Japan, U.S., France, U.K., and Germany. London, New York,
.
a of their respective countries.
and Tokyo, however, is by far the most important international finance centers
a
These three financial centers are frequently
because the major banks thatn
y
operate in them usually provide a full range of
services.
d
u
t are banks, which accept foreign currency deposits, finance
International banks
S business and provide associated and ancillary services like hedging
international
and advisory services and operate internationally.
m
transactions of the client. However, correspondent bank services also include
o
assistance with trade financing, such as honoring letters of credit and accepting
c
drafts drawn on the correspondent bank.
.
a
m
The correspondent bank mode is ideal because of its low cost when the volume
a
of business is small. The possible disadvantage is that the clients may not
receive- the required level ofn
yA Representative Office is a small service facility
service.
d
Representative Offices:
staffed by the u
t parent bank personnel that is designed to assist the foreign clients
of theSparent bank in dealings with the bank's correspondents and to provide the
clients with a level of service>greater than that provided through merely a
correspondent relationship.
Foreign Branches: Foreign branches, which may provide full services, may be
established when the volume of business is sufficiently large and when the law
of the land permits it. Foreign branches facilitate better service to the clients and
help the growth of business.
Subsidiaries and Affiliates: A subsidiary bank is a locally incorporated bank
that is either wholly or majority owned by a foreign parent and an affiliate bank
is one that is only partially owned but not controlled by its foreign parent.
Subsidiaries and affiliates are normally meant to handle substantial volume of
business. Their autonomy, compared to branches, more operational and strategic
management leverage.
m
activity of the country.The principal features that make a country attractive for
o
establishing an offshore banking operation are virtually total freedom from host-
c
.
country governmental banking regulations - for example, low reserve
a
requirements and no deposit insurance, low taxes, a favourable time zone that
m
a
facilitates international banking transactions, and to a minor extent, strict
banking secrecy laws."
y n
d
The offshore financial centers "are either operational centers, with extensive
t u
'banking activities involving short-term financial transactions, or booking
S
centers, where little actual banking activity takes place but where transactions
are recorded to take advantage of secrecy and low (or no) tax rates. In the latter
case, individuals may deposit money offshore to hide it from their home-,
country tax authorities, either because the money was earned illegally- such as
in drug trade or because the individual or company does not want to pay tax.
London is an example of an operational center; the Cayman Islands is an
example of a booking center."
International banks regard offshore financial centers as very good source for
raising deposits, taking advantage of lower borrowing costs and tax rates. The
offshore financial centers are centers for the Eurocurrency market. Offshore
banks operate as branches or subsidiaries of the parent bank.
• Market that is a large net supplier of funds to the world financial markets (that
in Switzerland, for example).
m
o
(those in the Bahamas and the Cayman Islands, for example).
yn
• Official regulatory climate favorable to the financial industry, in the sense that
d 24
t u
it protects investors without unduly restricting financial institutions.
S
The International Monetary Fund recognizes the Bahamas, Bahrain, the Cayman
Islands, Hong Kong, the Netherlands, Antilles, Panama, and Singapore as major
offshore banking centers.
The FERA was widely described as a draconian and obnoxious law. Following
m
the economic liberalization ushered in 1991, some amendments to the FERA
were effected in 1993.
c o
The main objective of FERA, framed against the .
a background of severe foreign
m
exchange problem and the controlled economic regime, was conservation and
The FEMA, which came in to effect from January 1, 2000, extends to the whole
of India and also applies to all branches, offices, and agencies outside India,
owned or controlled by a person resident in
Objectives
(a) Deal in any foreign exchange or foreign security with any person other than
an authorized person;
(b) Make any payment to or for the credit of any person resident outside India in
m
o
any manner;
. c
(c) Receive otherwise through an authorized person, any payment by order or on
a
behalf of any person resident outside India in any manner;
m
a
(d) Enter in to any financial transaction in India as a consideration for or in
yn
association with acquisition or creation or transfer of a right to acquire, any asset
d
outside India by any person.
u
t own, posses or transfer any foreign exchange, foreign security or
Further, save as otherwise provided in this Act, no person resident in India shall
S
acquire, hold,
any immovable property situated outside India, holding of foreign exchange etc.
Save as otherwise provided in this Act, no person resident in India shall acquire,
hold, own, possess or transfer any foreign exchange, foreign security or any
immovable property situated outside India.
Current Account Transactions
Any person may sell or draw foreign exchange to or from an authorized person
for a capital account transaction permitted by the Reserve Bank in consultation
with the Central Government.
The Reserve Bank may, however, without prejudice to the generality of this,
prohibit, restrict or regulate the following:
m
o
(a) Transfer or issue of any foreign security by a person resident in India;
c
. outside India;
a
(b) Transfer or issue of any security by a person resident
m
(c) Transfer or issue of any security or foreign security by any branch, office or
aoutside India;
n
agency in India of a person resident
t u
whatever name called;
S
(e) Any borrowing or lending in rupees in whatever form or by whatever name
called between a person resident in India and a person resident outside India;
(f) Deposits between persons resident in India and persons resident outside
India;
(h) Transfer of immovable property outside India, other than a lease not
exceeding five years, by a person resident in India;
(i) Acquisition or transfer of immovable property in India, other than a lease not
exceeding five years, by a person resident outside India;
A person resident in India may hold, own, transfer or invest in foreign. currency,
foreign security or any immovable property situated outside India if such
currency, security or property was acquired, held or owned by such person when
he was resident outside India or inherited from a person who was resident
m
o
outside India.
. c
A person resident outside India may hold, own, transfer or invest in Indian
a
currency, security or any immovable property situated in India if such currency,
m
security or property was acquired, held or owned by such person when he was
a
yn
resident in India or inherited from a person who was resident in India.
d
The Reserve Bank may prohibit, restrict, or regulate establishment in India of a
u
carrying ontany activity relating to such branch, office or other place of
branch, office or other place of business by a person resident outside India, for
S
business.
The Reserve Bank shall not impose any restriction on the drawal of foreign
exchange for payments due on account of amortization of loans or for
depreciation of direct investments in the ordinary course of business.
(b) furnish to the Reserve Bank such other information as may be required by
the Reserve Bank for the purpose of ensuring the realization of the export
proceeds by such exporter.
For the purpose of ensuring that export value of the goods is received without
m
any delay, the Reserve Bank may direct any exporter to comply with such
requirements as it deems fit.
c o
. Bank or to such other
a the true and correct material
Every exporter of services shall furnish to the Reserve
m
authorities a declaration as specified, containing
a services.
particulars in relation to payment for such
Under this chapter, penalty for Any kind of contravention under this Act is liable
to a penalty up to thrice the amount involved where it is quantifiable or up to Rs.
2 lakhs where it is not quantifiable and where such contravention is continuing
one, further penalty which may extend to five thousand rupees for every day
after the first day during which the contravention continues. This provision is in
total contrast to the respective provision in the erstwhile FERA which provided
for imprisonment and no limit on fine. Under FEMA, a person will be liable to
civil imprisonment only if he does not pay the fine within 90 days from the date
of notice and that too after formalities of show cause notice and personal
hearing. If he does not respond to the notice, there can be a warrant of arrest.
The FEMA has assigned an important role to the Reserve Bank of India in the
administration of this Act. The rules, regulations and norms pertaining to several
sections of the Act are to be laid down by the RBI, in consultation with the
Central Government.
m
The Act requires the Central Government to appoint as many officers of the
c o
Central Government as Adjudicating Authorities for holding inquiries pertaining
. for appointing one or more
a the order of the Adjudicating
to contravention of the Act. There is also a provision
d
Authorities and the Special
u
t for the establishment, by the Central Government, of a
The FEMA provides
Sof Enforcement with a Director and such other officers or class of
Director
officers as it thinks fit for taking up for investigation the contraventions under
this Act.
1. In FEMA, only the specified acts relating to foreign exchange are regulated,
while in FERA, anything and everything that has to do with foreign exchange
was controlled. Also, the aim of FEMA is facilitating trade as against that of
FERA, which was to prevent misuse. In other words, the theme of FERA was:
'everything that is specified is under control' While the theme of FEMA is :
'everything other than what is expressly covered is not controlled.' Thus there is
a lot of deregulation.
4. Many provisions of FERA like the ones relating to blocked accounts, Indians
taking up employment abroad, employment of foreign technicians in India,
m
contracts in evasion of the act, vexatious search, culpable mental state etc. have
no appearance in FEMA.
c o
International Monetary System: Historically, the .
a foreign exchange system has
m
undergone many changes and there have been many methods of determining the
exchange rate. a
Trade Barriers yn
d
u
t competition, to guard against dumping, to promote indigenous
The main objectives of imposing trade barriers are to protect domestic industries
S
from foreign
research and development, to conserve the foreign exchange resources of the
country, to make the balance of payments position more favourable, and to
discriminate against certain countries.
Trade barriers may be broadly classified into tariff and non-tariff barriers.
TARIFFS
(i) On the basis of the origin and destination of the goods crossing the national
boundary, tariffs may be classified into the following three categories:
Export duties
Import duties
m
originating from, and destined for, other countries.
a
yn
(ii) With reference to the basis for quantification of the tariff, we may have the
d
following threefold classification:
t
Specific Dutiesu
Sduty is a flat sum per physical unit of the commodity imported or
A specific
exported, thus a specific import duty is a fixed amount of duty levied upon each
unit of the commodity imported.
Ad-Valorem Duties
When a commodity is subject to both specific and ad-valorem duties, the tariff is
generally referred to as compound duty.
(iii) With respect to its application between different countries, the tariff system
may be classified into following three types:
m
countries.
d
(a) General and conventional tariff;
(b) Maximum u
t and minimum tariff.
(iv) With reference to the purpose they serve, tariffs may be classified into the
following categories.
Revenue Tariff
m
o
Sometimes the main intention of the government in imposing a tariff may be to
c
.
obtain revenue. When raising revenue is the primary motive, the rates of duty
a
are generally low, lest imports should be highly discouraged, defeating the
m
objective of mobilizing revenue for the government. Revenue tariffs tend to fall
a
yn
on articles of mass consumption.
Protective Tariff
d
tu
Protective tariff is intended primarily, to accord protection to domestic
S
industries from foreign competition. Naturally, the rates of duty tend to be very
high in this case because generally, only high rates of duty curtail imports to a
significant extent.
Countervailing duties may be imposed on certain imports when they have been
subsidized by foreign governments. Anti-dumping duties are applied to imports
which are dumped on the domestic market at prices either below their cost of
production or substantially lower than their domestic prices. Countervailing and
anti-dumping duties are, generally, penalty duties and an addition to the regular
rates.
Impact of Tariff
Tariffs affect on economy in different ways. An import duty generally has the
following effect:
An import duty is likely to increase the price of imported goods. This increase in
the price of imports is likely to reduce imports and increase the demand for
domestic goods. Import duties may also enable domestic industries to absorb
higher production costs. Thus, as a result of the production accorded by tariffs,
m
o
domestic industries are able to expand their output.
y
(iii) Redistribution Effectn
If the import duty d
tu to redistribution of income between the consumers and
causes and increase in the price of domestically produced
goods, it amounts
Sin favour of the producers. Further, a part of the consumer income is
producers
transferred to the exchequer by means of the tariff.
The tariff may cause a switchover from spending on foreign goods to spending
on domestic goods. This higher spending within the country may cause an
expansion in domestic income and employment.
The competitive effect on the tariff is, in fact, an anti-competitive effect in the
sense that the protection of domestic industries against foreign competition may
enable the domestic industries to obtain monopoly power with all its associated
evils.
y n
(vii) Balance of Payments Effect
Tariffs, by reducingd
tu position.
the volume of imports, may help the country to improve its
balance of payments
S
Nominal Tariff and Effective Tariff
Nominal tariff refers to the actual duty on an imported item. For example, if a
commodity X is subject to an import duty of 25 percent ad valorem, the nominal
tariff is 25 per cent.
Optimum Tariff
If a country raises its tariff (import duty) unilaterally, its terms of trade may
improve and its volume of trade may decline. The improvement in the terms of
trade initially tends to more than offset the accompanying reduction in the
volume of trade, Hence a higher trade indifference curve is reached and
community welfare is enhanced. Beyond some point, however, it is likely that
the detrimental effect of successive reductions in the trade volume begins to
outweigh the positive effect of further improvements in their terms of trade; as a
result, community welfare begins to fall. Somewhere in between there must be a
tariff which optimizes a country‘s welfare level under these conditions.
Thus, the optimum tariff is the rate of tariff beyond which any further gain from
an improvement in the terms of trade will be more than offset by the related
decline in volume. By raising the rate of tariff beyond the optimum rate, it may
still be possible to improve the country‘s terms of trade; but the gain from this
improvement in the terms of trade is more than offset by the related decline in
m
o
the volume of trade.
Non-Tariff Barriers :
. c
a
m
Non-tariff barriers (NTBs), many of which are described as new protectionism
a
measures (as against tariffs which are regarded as traditional barriers), have
grown considerably. Accordingn
ymore than one-third of imports from developing
to a World Bank study, NTBs in major
d
industrial countries affect
u
t to more than one-fourth from all countries.
countries, compared
NTBsS are of two categories, Firstly, there are those which are generally used by
developing countries to prevent foreign exchange outflows or result from their
chosen strategy of economic development. These include import licensing,
foreign exchange regulations, canalization of imports etc. The second category
of NTBs is those which are used by developed economies to protect domestic
industries which have lost international competitiveness and/or which are
politically sensitive for government of these countries.
The NTBs are less transparent, difficult to Identify and their impacts on
exporting countries are almost impossible to quantify.
As a matter of fact several advanced countries like the U.S.A., who are high
priests of free trade, resort to several NTBs, particularly against developing
countries. They are even accused of involving in arms-twisting tactics to mend
the economic policies of the developing countries. The Super 301, of the
Omnibus Trade and Competitiveness Act, 1988, of the U.S.A. is a case in point.
Jagadish Bhagwati observes that since the late 1970s, in the US and the EC,
protectionism has increasingly taken the covert shape. In those countries which
advocated free trade, the U.S. and the West European countries, there has been a
growing demand for more protective measures in the wake of the challenge of
m
their trade supremacy, particularly by the Pacific Rim nations. The growing
o
demand in the EC and US for local content regulation and the controversial
c
.
Super 301 of the US Act‘are manifestations of these. The Super 301 may
a
allegedly be used for covert protectionism, like harassment of successful foreign
m
rivals. First the rivals may be accused of indulging in unfair trade‘ and then they
a
n
may be taken through time consuming and expensive procedures.
y
d
The following are some of the important non-tariff barriers.
u
t Restraints
Voluntary Export
SExport Restraints (VERs) are bilateral arrangements instituted to
Voluntary
restrain the rapid growth of exports of specific manufactured goods. The United
States and the European Community have thus regulated the imports of several
products. The recent advances in VERs and other new protectionism measures
dates from the establishment of the Multi-Fiber Arrangement (MFA) in the mid
1970s. Other bilateral arrangements have involved mainly restraining the growth
of specific exports from Japan and the newly industrializing countries (NICs).
Administered Protection
(i) Health and Product Standards :- Several health and product standards
imposed by the developed countries hinder the exports of developing countries
because of the added costs or technical requirements. The need for maintaining
health and product standards is unquestionable. The objection should be to their
m
use with the deliberate intention trade restriction or discrimination.
c o
. lays down that when
The Agreement on Technical Barriers to Trade (also known as the Standards
Code) evolved by the Tokyo Round of the GATT
a
m
governments or other bodies adopt technical regulation or standard for reasons
y n
these should not create unnecessary obstacles to trade. Exporters from
tu in several cases.
developed countries
S Procedures: Certain customs procedures of many countries
(ii) Customs
become trade barriers. For example, studies point out that frequent changes of
Japan‘s customs regulations are themselves a significant barrier to exporters,
especially those not affiliated with Japanese overseas joint ventures.
a
the counter trade practices, canalization, etc. State
yn has declined.
countires, the role of state trading
m
The problem of NTBs for Indian exports has been growing. The ADB study of
o
the effects NTBs on India‘s exports to developed countries has come to the
c
.
a
following conclusion.
m
Conventional NTBs generally do not exist in developing country markets at
a
least for Indian exports. Their impact on exports of marine products and leather
y n
and leather manufactures to developed economies is somewhat marginal. Their
The above mentioned study has also pointed out that in the case of NTBs Indian
exporters have not taken full advantage of the scope which exists. Thus,
improvements in domestic capability will surely yield export expansion at least
in the short run.
The problem of NTBs for Indian exports has increased recently. The threat
under the Super 301 and Special 301 is an indication of this. The indications are
that India may have to face more problems in future. NTBs are often employed
when a county‘s exports to a country increases considerably, causing problems
m
to the industries in importing countries when the exporting country does not toe
the economic or political lines.
c o
QUANTITATIVE RESTRICTIONS - QUOTAS.
a
m
Quantitative restrictions or quotas are an important means of restricting imports
and exports. A quota represents aa ceiling on the physical volume of the
yn
import/export of a commodity.
There are four important types of import quotas, including import licensing.
These are:
A tariff quota combines the festures of the tariff as well as of the quota. Under a
tariff Quota the imports of a commodity up to a specified volume are allowed
duty free or at a special low rate; but any imports in excess of this limit are
subject to duty-a higher rate of duty.
(ii) Unilateral Quota
A bilateral quota results from negotiations between the importing country and a
particular supplier country, or between the importing country and export groups
withing the supplier country.
Under the mixing quota, the producers are obliged to utilize domestic raw
materials up to a certain proportion in the production of a finished product.
m
Import Licensing
c o
. of import licensing. In
a
Quota regulations are generally administered by means
m
India, for instance, the import of almost all the items is prohibited except under,
a
and in accordance with, a licence or a customs clearance permit issued under the
y n
Imports (Control) Order, 1955, or an Open General Licence issued by the
d
Government or under any other provision under the above order.
Under the t u
import licensing system, the prospective importers are obliged to
obtainS a licence from the licensing authorities: the possession of an import
licence is necessary to obtain the foreign exchange to pay for the imports, In a
large number of countries, import licensing has become a very powerful device
for controlling the quantity of imports-either of particular commodities or
aggregate imports.
Impact of Quotas
As quotas limit the total supply, they may cause an increase in domestic prices.
a
consumption of the commodity subject to quotas or some other commodities.
m
a
(iv) Protective Effect
n
y of domestic industries.
By guarding domestic industries against foreign competition to some extent,
d
quotas encourage the expansion
u
t Effect
(v) Redistributive
S
Quotas also have a redistributive effect if the fall in supply due to important
restrictions enables the domestic producers to raise prices. The rise in prices will
result in the redistribution of income between the producers and consumers in
favour of the producers.
Quotas may have revenue effect . The government may obtain some revenue by
charging a license fee.
GATT –General Agreement on Trade and Tariff
The General Agreement on Tariffs and Trade (GATT) was a multilateral treaty
that laid down agreed rules for conducting international trade. It came into force
in January 1948. Its basic aim was to liberalise trade and for 47 years it had been
concerned with negotiating the reduction of trade barriers and with international
trade relations. Overseeing the application of its rules was an important and
continuing part of its activities. GATT also provided a forum in which countries
could discuss and overcome their trade problems and negotiate to enlarge
international trading opportunities. The rapid and uninterrupted growth in the
volume of international trade till 1994 provided a good testimony for the success
of the GATT.
m
Trade Negotiation Under GATT:
c o
Eight major trade negotiations took place under the.GATT auspices are enlisted
a
m
below:
1. Geneva - 1947 a
2. Annecy – 1949 yn
d
u
t1956
3. Torquay – 1951
S
4. Geneva –
The first round in 1947 (Geneva) saw creation of the GATT. The second round
in 1949 (Annecy, France) involved negotiation with nations that desired GATT
membership. The principal emphasis was on tariff reduction. The third round in
1951 (Torquay, England) continued accession and tariff reduction negotiations.
The fourth round in 1956 (Geneva) proceeded along the same track as earlier
rounds. The fifth round in 1960-61 (Geneva, Dillon Round) involved further
revision of the GATT and the addition of more countries. The sixth round in
1964-67 (Geneva, Kennedy Round) was hybrid of earlier product-by-product
approach with across the board tariff reductions. The seventh round in 1973-79
(Geneva, Tokyo Round) centered on the negotiation of additional tariff cuts and
developed a series of agreements governing the use of non-tariff measures. The
eighth round (Uruguay Round) started in 1986 and was concluded in April 1994.
Uruguay Round
m
Uruguay Round of Multilateral Trade Negotiations was launched at Punta del
c o
Este in September 1986. These talks were the most ambitious and complex so
. subjects such as tariff and
non-tariff measures and the improvement ofa
far. Negotiations covered not only traditional GATT
a
subsidies, safeguards, etc. but also extended
GATT earlier, such as Traden
y (TRIMs) and Trade in Services and Agriculture.
Related Intellectual Property Rights (TRIPs), Trade
d
Related Invest-ment Measures
u
t was formally concluded at the Ministerial Conference held
The Uruguay Round
S Morocco, from 12-15 April 1994. India, along with 110 other
in Marrakech,
countries authenticated the results of the Uruguay Round by signing the Final
Act. In addition, 104 countries also signed the Agreement establishing the
World Trade Organisation (WTO). The WTO Agreement has come into force
from January 1, 1995 and India has become a founder member of the world
Trade Organisation, by ratifying the WTO Agreement on 30th December 1994.
And the momentum of trade liberalization helped ensure that trade growth
consistently outpaced production growth throughout the GATT era. The rush of
new members during the Uruguay Round demonstrated that the multilateral
trading system, as then represented by GATT, was recognized as an anchor for
development and an instrument of economic and trade reform.
m
A whole corpus of jurisprudence on trade matters evolved under the aegis of
o
GATT. The WTO is, in a large measure, built upon the strong foundation
c
provided by the GATT.
.
a
m
World Trade Organisation
a
The WTO was established on January 1, 1995. The WTO is the embodiment of
y n
the Uruguay Round results and the successor to GATT. 76 Governments became
members of the WTO d on its first day. As of December 2000, there are 142
tuWTO and 34 countries have an observer status. There is a
members of the
S
waiting list of 28 members. They account for more than 90 per cent of the world
trade. The WTO is based in Geneva, Switzerland.
2. The GATT was applied on a ' 'provisional basis'' even if, after more than forty
years, governments chose to treat it as a permanent commitment. The WTO
commitments are full and permanent.
m
c o
. aspects of intellectual
3. The GATT rules applied to trade in merchandise goods. In addition to goods,
a
the WTO covers trade in services and trade-related
property.
m
a instrument, by the 1980s many new
yn
4. While GATT was a multilateral
agreements had been added of a plurilateral, and therefore selective nature. The
agreements which d
u constitute the WTO are almost all multilateral and, thus,
t for the entire membership.
S
involve commitments
5. The WTO dispute settlement system is faster, more automatic, and thus much
less susceptible to blockages, than the old GATT system.
The WTO set up five Ministerial Working Groups to deliberate on the key areas
of negotiations. These were:
1. Agriculture
3. Market Access
m
member governments and attempted listing of basic issues which needed to be
addressed. Even though no final a
gives a synoptic view of whatn
conclusion could be arrived at, the following
(ii) The final objective for reducing export subsidies (whether to eliminate or
not)
The discussions proceeded on two broad lines. One group favoured the ultimate
goal of complete integration of agricultural trade with the WTO rules, total
elimination of export subsidies, substantial increase in market access and
support to non-trade objectives through policies not distorting trade. The other
group emphasized the distinct character of agriculture totally and the
consequential non-desirability of subjecting agriculture to the disciplines
governing other products. The principle of elimination of export subsidies was
also not acceptable to this group which also stressed the need to take cognizance
of multi-functionality of agriculture. According to press reports, there was some
movement towards convergence of views on export subsidies.
m
2. Implementation and Rules
c o
.
a
The major areas of concern requiring action, as highlighted by the developing
m
participating Governments, were:
TRIMs, customs valuation, agriculture, SPS, rules of origin and making S&D'
provisions more operational for the developing countries.
There was a strong divergence of standpoints on anti-dumping, subsidies and
textiles. Japan stressed the need to consider anti-dumping measures as a
disguised form of protectionism, nullifying the benefits of tariff reduction.
3. Market Access
(i) The points for deliberations included, inter alia, the following:
(ii) Overall objective of the negotiations, i.e., the level of tariff cuts.
m
(iv) How to address this specific concern of the least developed countries? There
o
was a proposal for extending bound zero tariffs for exports from the least
c
developed countries to the developed country markets. .
a
m
There was also a discussion on the methodology of tariff cutting exercise.
a
Unlike the Uruguay Round which followed the request-offer approach, there
y n
was a proposal for the harmonized approach to facilitate comparisons of tariff
d
reduction proposals. There was also a proposal for combining the request-offer
u
t approaches in future negotiations.
and harmonization
The major issue was whether members could agree to start negotiations on
investment and competition as parts of the new Round. There was divergence of
opinion on this. While a number of delegations were in favour of negotiations to
be launched in the Third Ministerial Conference, others were of the view that
study and analysis of these topics should continue to be in the Working Groups
on investment and competition set up in the Singapore Ministerial Conference.
There was also no progress towards convergence of view on TRIPs,
Government procurement and trade facilitation.
5. Systemic Issues
c o
.
Export Import Policy (2002-07)
a
m
Exim Policy 2002-07 highlights
a
yn
Service Sector:
d
Duty free import facility for service sector having a minimum foreign exchange
tu
earning of Rs.10 lakhs.
S
The duty free entitlement shall be 10% of the average foreign exchange earned
in the preceding three licensing years. However, for hotels, the same shall be 5%
of the average foreign exchange earned in the preceding three licensing years.
This entitlement can be used for import of office equipments, professional
equipments, spares and consumables. However, imports of agriculture and dairy
products shall not be allowed for imports against the entitlement. The
entitlement and the goods imported against such entitlement shall be non-
transferable.
Agro Export:
2. DEPB rate for selected agro products to factor in the cost of pre-production
inputs such as fertiliser, pesticides and seeds
Status Holders
m
o
2. This facility shall however be available to status holders having a minimum
c
.
export turnover of Rs.25 crore (in free foreign exchange). The duty free
a
entitlement shall be 10% of the incremental growth in exports and can be used
m
for import of capital goods, office equipment and inputs for their own factory or
a
yn
the factory of the associate/supporting manufacturer/job worker. The
entitlement/ goods shall not be transferable. This facility shall be available on
d
u
the exports made from 1.4.2003.
t Licence facility for status holders to be introduced to enable
S
3. Annual Advance
them to plan for their imports of raw material and components on an annual
basis and take advantage of bulk purchases.
4. The Input-Output norms for status holders to be fixed on priority basis within
a period of 60 days.
m
o
1. Diamond & Jewellery Dollar Account for exporters dealing in purchase/sale
c
of diamonds and diamond studded jewellery.
.
a
2. Nominated agencies to accept payment in dollars for cost of import of
m
a
precious metals from EEFC account of exporter.
d
Gold/silver/platinum prior to exports or post exports equivalent to value of
t u
jewellery exported. This means that they can bring export proceeds in kind
S
against the present provision of bringing in cash only.
Export Cluster
m
o
2. Export of 5 items namely paddy except basmati, cotton linters, rare earth, silk
c
.
cocoons, family planning devices except condoms removed from restricted list.
y
would now entitle domestic n suppliers to Drawback/ DEPB benefits, CST
d
exemption and Service Tax exemption.
t u
2. Agriculture/Horticulture processing SEZ units will now be allowed to provide
inputsSand equipments to contract farmers in DTA to promote production of
goods as per the requirement of importing countries. This is expected to
integrate the production and processing and help in promoting SEZs specialising
in agro exports.
3. Foreign bound passengers will now be allowed to take goods from SEZs to
promote trade, tourism and exports.
6. Netting of export permitted for SEZ unit provided it is between same exporter
and importer over a period of 12 months.
7. SEZ units permitted to take jobwork abroad and exports goods from there
only.
10. Export/import of all products through post parcel/courier by SEZ units will
m
now be allowed.
c o
.
11. The value of capital goods imported by SEZ units will now be amortised
uniformly over 10 years. a
m
a
12. SEZ units will now be allowed to sell all products including gems and
jewellery through exhibitionsn
y
and duty free shops or shops set up abroad.
2. EOUs are now required to be only net positive foreign exchange earner and
there will now be no export performance requirement.
3. Foreign bound passengers will now be allowed to take goods from EOUs to
promote trade, tourism and exports.
6. Gems and jewellery EOUs are now being permitted sub-contracting in DTA.
m
c o
.
a
m
a
yn
d
tu
S
8. Export/import of all products through post parcel/courier by EOUs will now
be allowed.
9. EOUs will now be allowed to sell all products including gems and jewellery
through exhibitions and duty free shops or shops set up abroad.
10. Gems and jewellery EOUs will now be entitled to advance domestic sales.
EPCG Scheme
1. The scheme shall now allow import of capital goods for pre-production and
post-production facilities also.
2. The Export Obligation under the scheme shall now be linked to the duty
saved and shall be 8 times the duty saved.
m
c o
3. To facilitate upgradation of existing plant and machinery, import of spares
.
shall also be allowed under the scheme.
a
m
4. To promote higher value addition in exports, the existing condition of
a of 50% for products in the higher
ynwith.
imposing an additional Export Obligation
product chain to be done away
dfor fulfillment of export obligation under the scheme by
u
t of any other product manufactured by the exporter. This shall
5. Greater flexibility
S
allowing export
take care of the dynamics of international market.
6. Capital goods upto 10 years old shall also be allowed under the scheme.
DEPB Scheme
Advance Licence
m
2. Anti-dumping and safeguard duty exemption to advance license for deemed
exports for supplies to EOU/SEZ/EHTP/STP.
c o
.
DFRC Scheme
a
m
1. Duty Free Replenishment Certificate scheme extended to deemed exports to
a
n
provide a boost to domestic manufacturer.
Reduction in u
t Transaction Cost
S
1. High priority being accorded to the EDI implementation programme covering
all major community partners in order to minimise transaction cost, time and
discretion. We are now gearing ourselves to provide on line approvals to
exporters where exports have been affected from 23 EDI ports.
1. Actual user condition for import of second hand capital goods upto 10 years
old dispensed with.
2. Reduction in penal interest rate from 24% to 15% for all old cases of default
under Exim Policy.
m
exports in preceding three years subject to ceiling of Rs.5 lakh permitted.
c o
.
a
m
a
yn
d
tu
S
Unit - V
In exercise of the powers conferred by clause (b) of Section 9 and clause (e) of
subsection (2) of Section 47 of the Foreign Exchange Management Act, 1999
(42 of 1999), the Reserve Bank of India makes the following regulations for
opening, holding and maintaining of Foreign Currency Accounts and the limits
up to which amounts can be held in such accounts by a person resident in India,
namely:
c
.
II. They shall come into force on 1st day of June 2000.
a
m
2. Definitions:-
a
yn
In these Regulations, unless the context requires otherwise, -
tu
1999) ;
S‗authorised
(ii) dealer‘ means a person authorised as an authorised dealer
under sub-section (1) of section 10 of the Act, and includes a person
carrying on business as a factor and authorised as such under the
saidsection 10 ;
(iv) ‗export‘ includes the taking or sending out of goods by land, sea or
air, on consignment or by way of sale, lease, hire-purchase, or under
any other arrangement by whatever name called, and in the case of
software, also includes transmission through any electronic media ;
m
o
called in or on any medium other than in or on any physical medium
;
. c
(ix) a
‗specified authority‘ means the person or the authority to whom the
m
declaration as specified in Regulation 3 is to be furnished;
a
yn
(x) ‗Working Group‘ means the Group constituted by the Reserve Bank
d
for the purpose of considering proposals of export of goods and
u
t or a civil construction contract;
services on deferred payment terms or in execution of a turnkey
S project
(xi) the words and expressions used but not defined in these Regulations
shall have the same meanings respectively assigned to them in the
Act.
(ii) if the full export value is not ascertainable at the time of export, the
value which the exporter, having regard to the prevailing market
conditions expects to receive on the sale of the goods or the
software in overseas market, and affirms in the said declaration that
the full export value of goods (whether ascertainable at the time of
export or not) or the software has been or will within the specified
period be, paid in the specified manner.
m
(2) Declarations shall be executed in sets of such number as specified.
c o
. in these Regulations
(3) For the removal of doubt, it is clarified that, in respect of export of
a
services to which none of the Forms specified
m
apply, the exporter may export such services without furnishing any
4. Exemptions :-
may be made without furnishing the declaration in the following cases, namely:
f) aircrafts or aircraft engines and spare parts for overhauling and/or repairs
abroad subject to their reimport into India after overhauling /repairs,
m
within a period of six months from the date of their export;
c o
.
g) goods imported free of cost on re-export basis;
a
h) goods not exceeding U.S.$ 1000 or its equivalent in value per transaction
m
exported to Myanmar under the Barter Trade Agreement between the
a
yn
Central Government and the Government of Myanmar;
d
i) the following goods which are permitted by the Development
u
t namely:
Commissioner of the Export Processing Zones or Free Trade Zones to be
S
re-exported,
m
o
6. Authority to whom declaration is to be furnished and the manner of
dealing with
. c
the declaration :- a
m
A. Declaration in Form GR/SDF
a
y n
(i) The declaration in form GR/SDF shall be submitted in duplicate to
d
the Commissioner of Customs.
u
t duly verifying and authenticating the declaration form, the
(ii) After
SCommissioner of Customs shall forward the original declaration
form/data to the nearest office of the Reserve Bank and hand over the
duplicate form to the exporter for being submitted to the authorized
dealer.
B. Declaration in Form PP
m
Government of India at the Software Technology Parks of India
o
(STPIs) or at the Free Trade Zones (FTZs) or Export Processing
c
Zones (EPZs) in India.
.
a
m
(ii) After certifying all three copies of the SOFTEX form, the said
a
designated official shall forward the original directly to the nearest
n
The triplicatey
office of the Reserve Bank and return the duplicate to the exporter.
c
.
conditions expects to receive on the sale of the goods in
the overseas market. a
m
Explanation:
a
y n
For the purpose of this regulation, ‗final place of destination‘ means a
d
place in a country in which the goods are ultimately imported and
clearedu
t through Customs of that country.
Unless otherwise authorized by the Reserve Bank, the amount representing the
full export value of the goods exported shall be paid through an authorized
dealer in the manner specified in the Foreign Exchange Management (Manner
and Receipt and Payment) Regulations, 2000.
Explanation:
For the purpose of this regulation, re-import into India, within the period
specified for realisation of the export value, of the exported goods in
respect of which a declaration was made under Regulation 3, shall be
deemed to be realization of full export value of such goods.
The amount representing the full export value of goods or software exported
shall be realized and repatriated to India within six months from the date of
export: Provided that where the goods are exported to a warehouse
established outside India with the permission of the Reserve Bank, the
m
amount representing the full export value of goods exported shall be paid to
c o
the authorized dealer as soon as it is realized and in any case within fifteen
. Provided further that the
Reserve Bank, or subject to the directionsa
months from the date of shipment of goods.
y
six months or fifteen months, as the case may be.
Explanation: d
For t
u
the purpose of this regulation, the ―date of export‖ in relation to the
S export of software in other than physical form, shall be deemed to be the
date of invoice covering such export.
No person shall enter into any contract to export goods on the terms which
provide for a period longer than six months for payment of the value of the
goods to be exported: Provided that the Reserve Bank may, for reasonable
and sufficient cause shown, grant approval to enter into a contract on such
terms.
11. Submission of export documents:-
The documents pertaining to export shall, within 21 days from the date of
export as, as the case may be, from the date of certification of SOFTEX
form, be submitted to the authorised dealer mentioned in the relevant
declaration form: Provided that, subject to the directions issued by the
Reserve Bank from time to time, the authorised dealer may accept the
documents pertaining to export submitted after the expiry of the specified
period of 21 days, for reasons beyond the control of the exporter.
m
o
Without prejudice to Regulation 3, an authorised dealer may accept, for
c
exchange covering exports, from his constituent.(not being a person who has
negotiation or collection, shipping documents including invoice and bill of
a
accepting such documents fora
m
signed the declaration in terms of Regulation 3): Provided that before
negotiation or collection, the authorised dealer
shall –
yn
a) whered
u the value declared in the declaration does not differ from the
tvalue shown in the documents being negotiated or sent for
S collection, or
b) where the value declared in the declaration is less than the value
shown in the documents being negotiated or sent for collection,
require the constituent concerned also to sign such declaration and
thereupon such constituent shall be bound to comply with such
requisition and such constituent signing the declaration shall be
considered to be the exporter for the purposes of these Regulations
to the extent of the full value shown in the documents being
negotiated or sent for collection and shall be governed by these
Regulations accordingly.
(i) that the payment for the goods or software is made otherwise than in
the specified manner; or
m
o
(ii) that the payment is delayed beyond the period specified under these
Regulations; or
. c
a
(iii) that the proceeds of sale of the goods or software exported do not
m
represent the full export value of the goods or software subject to
a
yn
such deductions, if any, as may be allowed by the Reserve Bank or,
subject to the directions of the Reserve Bank, by an authorised
d
u dealer; Provided that no proceedings in respect of contravention of
t provisions shall be instituted unless the specified period has
Sexpired and payment for the goods or software representing the full
these
export value, or the value after deductions allowed under clause (iii),
has not been made in the specified manner within the specified
period.
No person shall, except with the prior permission of the Reserve Bank,
take or send out by land, sea or air any goods from India to any place
outside India on lease or hire or under any arrangement or in any other
manner other than sale or disposal of such goods.
m
institution operating in a foreign state by the Exim Bank for financing
c o
exports from India, shall be governed by the terms and conditions
. dealers from time to
a
advised by the Reserve Bank to the authorised
m
time.
C. Counter Trade:- a
ynadjustment of value of goods imported into India
Any arrangement involving
against value ofd
u
t Bank.
goods exported from India shall require prior approval of
S
the Reserve
i) the shipment of goods is made within one year from the date of
receipt of advance payment;
m
c o
. Rate (LIBOR) + 100
ii) the rate of interest, if any, payable on the advance payment does
a
not exceed London Inter-Bank Offered
basis points, and
m
a the shipment are routed through the
n through whom the advance payment is
iii) the documents covering
ydealer
authorized
d Provided that in the event of the exporter‘s inability to
u
received;
t make the shipment, partly or fully, within one year from the date
S of receipt of advance payment, no remittance towards refund of
unutilised portion of advance payment or towards payment of
interest, shall be made after the expiry of the said period of one
year, without the prior approval of the Reserve Bank.
. c
a) that the payment of the goods or software is covered by an
a
irrevocable letter of credit or by such other arrangement or
m
a
document as may be indicated in the order
n
shall y
b) that any declaration to be furnished to the specified authority
m
guidelines issued by the Reserve Bank from time to time.
Explanation:
c o
. means the Working
a
For the purpose of this Regulation, ‗approving authority‘
m
Group or the Exim Bank or the authorized dealer.
aSchedule
n to Regulation 3)
y(Refer
Form GR: To u
d
t of software in physical form i.e. magnetic tapes/discs and paper
be completed in duplicate for export otherwise than by Post
S
including export
media.
Form SDF: To be completed in duplicate and appended to the shipping bill, for
exports declared to Customs Offices notified by the Central Government which
have introduced Electronic Data Interchange (EDI) system for processing
shipping bills notified by the Central Government.
Schedule I
(See Rule 3)
a
5. Remittance of dividend by any company to which the requirement of
m
a
dividend balancing is applicable.
y n
6. Payment of commission on exports under Rupee State Credit Route.
S
8. Remittance
Rupee(Account) Scheme.
Schedule II
(See Rule 4)
m
international bidding (exceeding US$ 10,000) by a State Affairs)
o
Government and its Public Sector Undertakings
3. Remittance of freight of vessel charted by a c
. (Chartering Wing)
Ministry of Surface Transport,
PSU
a
m
4. Payment of import by a Govt. Department or a PSU on c.i.f. Ministry of Surface Transport,
a
basis (i.e. other than f.o.b. and f.a.s. basis) (Chartering Wing)
y n
5. Multi-modal transport operators making remittance to their Registration Certificate from the
d
agents abroad Director General of Shipping
6*. Omitted.
t u Omitted.
prescribed by S
7. Remittance of container detention charges exceeding the rate Ministry of Surface Transport
Director General of Shipping (Director General of shipping)
8.Remittances under technical collaboration agreements where Ministry of Industry and
payment of royalty exceeds 5% on local sales and 8% on Commerce
exports and lump-sum payment exceeds US$ 2 million
9. Remittance of prize money/sponsorship of sports activity Ministry of Finance, (Insurance
abroad by a person other than International/National/State Division)
Level sports bodies. If the amount involved exceeds US$
100,000Ministry of Human Resources Development
(Department of Youth Affairs and Sports)
10. Payment for securing Insurance for health from a company Ministry of Finance, (Insurance
abroad Division)
11. Remittance for membership of P & I Club Ministry of Finance,
(Insurance Division)
*Item No.6 - omitted - In terms of Government Notification - G.S.R. 442
dated 22nd October 2002
Schedule III
(See Rule 5)
a
year, for one or more private visits to any country (except Nepal and Bhutan).
yn
d
3. Gift remittance exceeding US$ 5,000 per remitter/donor per annum.
4. Donationt u
exceeding US$ 5000 per remitter/donor per annum.
S
5. Exchange facilities exceeding US $ 5,000 for persons going abroad for
employment.
m
o
8. Release of foreign exchange, exceeding US$ 25,000 to a person, irrespective
. c
of period of stay, for business travel, or attending a conference or specialised
a
training or for maintenance expenses of a patient going abroad for medical
m
treatment or check-up abroad, or for accompanying as attendant to a patient
a
n
going abroad for medical treatment/check-up.
y
d
9. Release of exchange for meeting expenses for medical treatment abroad
exceeding the u
t estimate from the doctor in India or hospital/doctor abroad.
S
10. Release of exchange for studies abroad exceeding the estimate from the
institution abroad or US$ 30,000, per academic year, whichever is higher.
15. Remittance exceeding US$ 100,000/ per project, for any consultancy service
procured from outside India
PART III
m
c o
.
Export of Goods and services
a
Section `A‟ : General
m
a
yn
A.1 Trade and Exchange Control
(ii) Any reference to Reserve Bank should be made to the office of Exchange
Control Department within whose jurisdiction the applicant person, firm or
company resides or functions unless otherwise indicated. If for any particular
reason, a firm or company desires to deal with a different office of the Exchange
Control Department, it may approach the office within whose jurisdiction it
functions for necessary approval.
m
(ii) Gift of goods exceeding rupees one lakh in value require approval of the
Reserve Bank.
c o
.
a
(iii) Authorised Dealers may consider requests for grant of GR waiver from
m
a
exporters for export of goods free of cost, for export promotion upto 2 percent of
yn
average annual exports of the applicant during the preceding three years subject
d
to a ceiling of Rs.5 lakhs.
u
t goods not involving any foreign exchange transaction directly or
(iv) Export of
Srequires the waiver of GR/PP procedure from Reserve Bank.
indirectly,
GR, PP and SOFTEX forms will bear specific identification numbers. In all
applications/correspondence with the Reserve Bank, this identification number
should invariably be cited. In the case of declarations made on SDF form, the
port code number and shipping bill number should be cited.
A. 4 Manner of Payment
(i) The amount representing the full export value of the goods exported shall be
received through an authorised dealer in the manner specified in the Foreign
Exchange Management (Manner of Receipt & Payment) Regulations, 2000
notified vide Notification No. FEMA 14/2000-RB, dated 3rd May, 2000.
(ii) Payment for export may also be received by the exporter in the following
manner :
m
o
b. Foreign currency notes/foreign currency travellers‘ cheques from
the buyer during his visit to India.
. c
a
c. Payment out of funds held in the FCNR/NRE account maintained
m
a
by the Buyer
n
yto overseas buyers during their visits is received in
d. Through International Credit Cards. When payment, in respect of
d
goods sold
u
t authorised dealers only on receipt of funds in their Nostro
this manner the GR/SDF (duplicate) should be released by the
. c
a
A. 5 Guarantees against Exports
m
a
Prior approval of Reserve Bank should be obtained by authorised dealers for
n
issue of guarantees in respect of caution-listed exporters.
y
d Accounts –
u
A.6 (i) Foreign Currency
t
S
Reserve Bank may consider applications in Form EFC from exporters having
good track record for opening foreign currency accounts with banks subject to
certain terms and conditions. Applications for opening such an account with a
branch of an authorised dealer in India may be submitted through the branch at
which the foreign currency account is to be maintained. If the foreign currency
account is to be maintained abroad the application should be made by the
exporter giving details of the bank with which the account will be maintained.
An Indian entity has also been permitted to open, hold and maintain in the name
of its office/branch set up outside India, a foreign currency account with a bank
outside by making remittance for the purpose of normal business operations of
the said office/branch or representative subject to certain conditions.
Indian corporates who have set up overseas offices abroad have been permitted
to acquire immovable property outside India for their business as also staff
residential purposes with prior permission of RBI, until further notice.
A unit located in a Special Economic Zone (SEZ) may be allowed to open , hold
and maintain a Foreign Currency Account with an authorised dealer in India
subject to certain specified conditions.
m
o
Under the scheme of Government of India, firms and companies dealing in
c
.
purchase/sale of rough or cut and polished diamonds / diamond studded
a
jewellery, with track record of at least three years in import or export of
m
a
diamonds and having an average annual turnover of Rs. 5 crores or above during
u
t eligible firms and companies may apply for permission to
be allowed to open
S
banks. Accordingly,
the Chief General Manager, Exchange Control Department, Exports Division,
Reserve Bank of India, Central Office, Mumbai 400 001, through their
authorised dealer.
A person resident in India may open, hold and maintain with an authorised
dealer in India, a foreign currency account to be known as Exchange Earners‘
Foreign Currency (EEFC) Account. This account will be maintained only in the
form of non-interest bearing current account and no credit facilities either fund-
based or non-fund based, should be permitted against the security of balances
held in EEFC accounts, by the authorised dealers. The limits of eligible credits
to the EEFC accounts are 70% for Export Oriented Units or units in (a) Export
Processing Zone or (b) Software Technology Park or (c) Electronic Hardware
Technology Park and to 50% for other persons resident in India in respect of
inward remittance received through normal banking channel, other than the
remittance received pursuant to any undertaking given to the Reserve Bank or
which represents foreign currency loan raised or investment received from
outside India or those received for meeting specific obligations by the account
holder.
m
o
Exporters who have been certified as "Status Holder" in terms of the EXIM
c
.
Policy are permitted to credit amount upto 100% of their eligible receipts of
foreign exchange to their EEFC Account a
m
a
n
Payments received in foreign exchange by a unit in Domestic Tariff Area (DTA)
y
for supply of goods to a unit in Special Economic Zones out of its foreign
dbe treated as eligible foreign exchange earnings for the
u to the EEFC A/c. Authorised Dealers may credit such
currency a/c. are to
purpose of tcredit
Sreceived in foreign exchange by a unit in DTA to its EEFC A/c.
payments
Authorised Dealers may till further notice, permit their exporter constituents to
extend trade related loans / advances to overseas importers out of their EEFC
balances without any ceiling.
Authorised Dealers may permit units in DTAs to purchase foreign exchange for
making payment for goods supplied to them by units in SEZs.
(i) Counter trade proposals involving adjustment of value of goods imported into
India against value of goods exported from India in terms of an arrangement
voluntarily entered into between the Indian party and the overseas party through
an Escrow Account opened in India in U.S. dollar will be considered by the
m
Reserve Bank. All imports and exports under the arrangement should be at
c o
international prices in conformity with the Exim Policy and Foreign Exchange
. made thereunder. No
a
Management Act, 1999 and the Rules and Regulations
m
interest will be payable on balances standing to the credit of the Escrow Account
a
but the funds temporarily rendered surplus may be held in a short-term deposit
up to a total period of three n
y
months in a year (i.e., in a block of 12 months) and
d
the banks may pay interest at the applicable rate. No fund based/or non-fund
based facilitiesu
t would be permitted against the balances in the Escrow Account.
S
(ii) Application for permission for opening an Escrow Account may be made by
the overseas exporter/organisation through the authorised dealer with whom the
account is proposed to be opened, to the office of Reserve Bank under whose
jurisdiction the authorised dealer is functioning.
Export of machinery, equipment, etc., on lease, hire, etc., basis under agreement
with the overseas lessee against collection of lease rentals/hire charges and
ultimate re-import require prior approval of the Reserve Bank. Exporters should
apply for necessary permission, through an authorised dealer, to the concerned
Regional Office of the Reserve Bank, giving full particulars of the goods to be
exported.
. c
and operate the account during their stay outside India provided that the balance
a
in the account is repatriated to India within a period of one month from the date
m
of closure of the exhibition/trade fair and full details are submitted to the
a
n
concerned authorised dealer.
y
d
(ii) Firms/Companies and other organisations participating in Trade
Fair/Exhibitionu
t India without the prior approval of the Reserve Bank of India.
abroad are now permitted to take/export goods for exhibition
S
and sale outside
Unsold exhibit items may be sold outside the exhibition/trade fair in the same
country or in another third country. Such sales at discounted value are also
permissible. It would also be permissible to `gift' unsold goods upto the value of
US $ 5000 per exporter, per exhibition/trade fair.
ii. The sale proceeds of the items sold are repatriated to India in accordance
with Foreign Exchange Management (Realisation, Repatriation, and
Surrender of Foreign Exchange) Regulations, 2000.
iii. The exporter shall report to the Authorised Dealer the method of disposal
of all items exported, as well as the repatriation of proceeds to India.
u
undertakingtexecution of such contracts. Regulations relating to ‗Project
Authorised Dealer/Exim
S
Exports‘ and ‗Service Exports‘ are laid down in the Memorandum on Project
Exports (PEM).
(ii) Pure supply contracts (contracts for export of goods) where at least 90 per
cent of the export value is realised within the prescribed period, i.e., six months
from the date of export and the balance amount within a maximum period of two
years from the date of export are not treated as deferred payment exports,
provided the exporter does not require/avail of any funded or non-funded
facility/ies for such exports from authorised dealers.
(iii) Exporters desiring to submit bids for execution of projects abroad including
service contract have been allowed to issue Corporate Guarantee in lieu of Bid
Bond Guarantee, provided the amount of such guarantee shall not exceed 5% of
the contract value.
Exporters intending to export goods on elongated credit terms may submit their
proposals giving full particulars through their banks to the concerned Regional
Office of Reserve Bank for consideration.
m
o
Units in SEZs are permitted to undertake job work abroad and export goods
c
.
from that country itself subject to the conditions that -
a
(i)
m
Processing / manufacturing charges are suitably loaded in the export
a
yn
price and are borne by the ultimate buyer.
d
(ii) The exporter has made satisfactory arrangements for realisation of
tu
full export proceeds subject to the usual GR procedure.
S
A. 13 Forfaiting
Export-Import Bank of India (Exim Bank) and authorised dealers have been
permitted to undertake forfaiting, for financing of export receivables. It would
be in order for authorised dealers to allow remittance of commitment fee/service
charges, etc., payable by the exporter as approved by the Exim Bank/the
concerned authorised dealer. Such remittance may be permitted in advance in
one lump sum or at monthly intervals as approved by the concerned agency.
Section B – GR / PP / SOFTEX PROCEDURE
(a) GR forms should be completed by the exporter in duplicate and both the
copies submitted to the Customs at the port of shipment along with the shipping
bill. Customs will give their running serial number on both the copies after
admitting the corresponding shipping bill. The Customs serial number will have
ten numerals denoting the code number of the port of shipment, the calendar
year and a six digit running serial number. Customs will certify the value
m
declared by the exporter on both the copies of the GR form at the space
c o
earmarked and will also record the assessed value. They will then return the
duplicate copy of the form to the exporter .
a and retain the original for
m
transmission to Reserve Bank. Exporters should submit the duplicate copy of the
a
GR form again to Customs along with the cargo to be shipped. After
y
examination of the goods and n certifying the quantity passed for shipment on the
d
duplicate copy, Customs will return it to the exporter for submission to the
t u
authorised dealer for negotiation or collection of export bills.
S
(b) Within twenty-one days from the date of export, exporter should lodge the
duplicate copy together with relative shipping documents and an extra copy of
the invoice with the authorised dealer named in the GR form. After the
documents have been negotiated/sent for collection, the authorised dealer should
report the transaction to Reserve Bank in statement ENC under cover of
appropriate R-Supplementary Return. However, the duplicate copy of the form
together with a copy of invoice etc. will henceforth be retained by the authorised
dealer and may not be submitted to Reserve Bank.
Note: (i) In the case of exports made under deferred credit arrangement or to
joint ventures abroad against equity participation or under rupee credit
agreement, the number and date of Reserve Bank approval and/or number and
date of the relative RBI circular should be recorded at the appropriate place on
the GR form.
. c
(to be annexed to the relative shipping bill) to the concerned Commissioner of
a
Customs. After verifying and authenticating the declaration in form SDF, the
m
Commissioner of Customs will hand over to the exporter, one copy of the
shipping bill marked ‗Exchange a
nto the authorised dealer within 21 days from the
Control Copy‘ in which form SDF has been
y
appended for being submitted
date of export. Thed
u bill and form SDF appended thereto, submitted by the
authorised dealer should accept the Exchange Control (EC)
copy of thetshipping
Sfor collection/negotiation of shipping documents. The manner of
exporter
disposal of EC copy of shipping Bill (and form SDF appended thereto) is same
as that for GR forms.
(d) In cases where ECGC initially settles the claims of exporters in respect of
exports insured with them and subsequently receives the export proceeds from
the buyer/buyer‘s country through the efforts made by them, the share of
exporters in the amount so received is disbursed through the bank which had
handled the shipping documents. In such cases, ECGC will issue a certificate to
the bank which had handled the relevant shipping documents after full proceeds
have been received. The certificate will indicate the number of declaration form,
name of the exporter, name of the authorised dealer, date of negotiation, bill
number, invoice value and the amount actually received by ECGC.
(e) The authorised dealer should ensure by random check of the relevant
duplicate forms by their internal / concurrent auditors to confirm that non-
realisation or short realization allowed, if any, is within the powers delegated to
them or has been duly approved by Reserve Bank, wherever necessary.
(f) Where a part of export proceeds are credited to EEFC account, the export
declaration (duplicate) form may be certified as under :
m
"Proceeds amounting to.......
c o
.
a
representing......% of the export realisation
m
credited to EEFC account maintained by the exporter with......"
a
yn
(ii) The manner of disposal of PP forms is same as that for GR forms. Postal
should be t
u
form has been countersigned
a. an irrevocable letter of credit for the full value of the export has been
opened in favour of exporter and has been advised through authorised
m
o
dealer concerned;
. c
or
a
m
the full value of the shipment has been received in advance by the
a
yn
exporter through an authorised dealer;
d or
tu
S
b. the authorised dealer is satisfied, on the basis of the standing and track
record of the exporter and the arrangements made for realisation of the
export proceeds, that he could do so.
(ii) In respect of contracts involving only ‗one shot operation‘, the invoice/bill
should be raised within 15 days from the date of transmission.
m
c o
(iii) The exporter should submit declaration in Form SOFTEX in triplicate in
respect of export of computer software and audio /.
a video / television software to
m
the concerned designated official of Government of India at STPI / EPZ /FTZ
a
/SEZ for valuation / certification not later than 30 days from the date of invoice /
y n
the date of last invoice raised in a month, as indicated above. The designated
d
officials may also certify the SOFTEX Forms in respect of EOUs which are
registered withu
t them.
S
(iv) The invoices raised on overseas clients as at (i) to (iii) above will be subject
to valuation of export declared on SOFTEX form by the concerned designated
official of Government of India and consequent amendment made in the invoice
value, if necessary.
(i) When part of a shipment covered by a GR form already filed with Customs is
short-shipped, exporter must give notice of short-shipment to Customs in form
and manner prescribed. In case of delay in obtaining certified short-shipment
notice from Customs, exporter should give an undertaking to the authorised
dealer to the effect that he has filed the short-shipment notice with the Customs
and that he will furnish it as soon as it is obtained.
m
(ii) Where a shipment has been entirely shut out and there is delay in making
c o
arrangements to re-ship, exporter will give notice in duplicate to Customs in the
manner and in form prescribed for the purpose, .
a attaching thereto the unused
m
duplicate copy of GR form and the shipping bill. Customs will verify that the
a
shipment was actually shut out, certify copy of the notice as correct and forward
it to Reserve Bank together n
y
with unused duplicate copy of the GR form. In this
d
case, the original GR form received earlier from Customs will be cancelled. If
the shipment isu
t made subsequently, a fresh set of GR form should be completed.
S
B. 5 Consolidation of Air Cargo
Where air cargo is shipped under consolidation, the airline company‘s Master
Airway Bill will be issued to the Consolidating Cargo Agent who will in turn
issue his own House Airway Bills (HAWBs) to individual shippers. Authorised
dealers may negotiate HAWBs only if the relative letter of credit specifically
provides for negotiation of these documents in lieu of Airway Bills issued by the
airline company. Authorised dealers may also accept Forwarder‘s Cargo
Receipts (FCR) issued by steamship companies or their agents (instead of
'IATA' approved agents), in lieu of bills of lading, for negotiation / collection of
shipping documents, in respect of export transactions backed by letters of credit,
only if the relative letter of credit specifically provides for negotiation of this
document, in lieu of bill of lading. Further, relative sale contract with the
overseas buyer should also provide that FCR may be accepted in lieu of bill of
lading as a shipping document.
m
through which the vessel or vehicle has to pass before crossing over to
a
the foreign territory. For this purpose, exporter may arrange either to
y n
give the form to the person in charge of the vessel or vehicle or forward
d
it to his agent at the border for submission to Customs.
u
t exports by rail, Customs staff have been posted at certain
b. As regards
Sdesignated railway stations for attending to Customs formalities. They
will collect the GR/SDF forms in respect of goods loaded at these
stations so that the goods may move straight on to the foreign country
without further formalities at the border. The list of designated railway
stations is obtainable from the Railways. In respect of goods loaded at
stations other than the designated stations, exporters must arrange to
present GR/SDF forms to the Customs Officer at the Border Land
Customs Station where Customs formalities are completed.
c. In terms of an agreement on Border Trade between India and Myanmar,
exchange of certain specified locally produced commodities, by people
living along the India-Myanmar border on both sides under barter trade
arrangement as also trade in freely convertible currency, has been
permitted. Authorised dealers should follow strictly the revised
guidelines issued in terms of A.P.(DIR Series) Circular No.17 dated
16.10.2000.
m
In cases where exporters present documents pertaining to exports after the
c o
prescribed period of twenty-one days from date of export, authorised dealers
may handle them without prior approval of Reserve.Bank, provided they are
a
m
satisfied with the reasons for the delay.
a
n
C. 2 Check-list for Scrutiny of Forms
y
d should verify the following :
u
Authorised dealer/exporter
i. S
t
Authorised dealer should ensure that the number on the duplicate copy of
a GR form presented to them is the same as that of the original which is
usually recorded on the Bill of Lading/Shipping Bill and the duplicate
has been duly verified and authenticated by appropriate Customs
authorities. In the case of SDF form, the Shipping Bill No. should be the
same as that appearing on the Bill of Lading.
yn
circumstances such as where in c.i.f. or c. & f. contracts, part or whole of
u
t of the currency of the contract, buyers have agreed to an
agreed to be
S
devaluation
increase in price.
As such variations stem from the terms of contract, authorised dealers may
m
accept them on production of documentary evidence after verifying the
o
arithmetical accuracy of the calculations and on conforming the terms of
c
underlying contracts.
.
a
C. 3 Trade Discount
m
Bills in respect of exports byn
a
y
sea or air which fall short of the value declared on
d
GR/SDF forms on account of trade discount may be accepted for negotiation or
collection onlyu
t of shipment and accepted by Customs.
if the discount has been declared by exporter on relative GR/SDF
S
form at the time
Exporters may receive advance payments (with or without interest) from their
overseas buyers. It should, however, be ensured that the shipments made against
the advance payments are monitored by the authorised dealer through whom the
advance payment is received. The appropriations made against every shipment
must be endorsed on the original copy of the inward remittance certificate issued
for advance remittance.
Note : Purchase of foreign exchange from the market for refunding advance
payment credited to EEFC account may be allowed only after utilising the entire
balances held in the exporter‘s EEFC accounts maintained at different
branches/banks.
C. 5 Part Drawings
In certain lines of export trade, it is the practice to leave a small part of the
invoice value undrawn for payment after adjustment due to differences in
weight, quality, etc. to be ascertained after arrival and inspection, weighment or
analysis of the goods. In such cases, authorised dealers may negotiate bills,
provided
m
c o
a. the amount of undrawn balance is considered normal in the
. to a maximum of 10 per
a
particular line of export trade, subject
m
cent of the full export value; and
b. an undertaking isa
n that he will surrender/account for the balance
obtained from exporter on the duplicate of
y
GR/SDF/PP forms
d of the shipment within the period prescribed for
tu
proceeds
realisation.
S
Note : In cases where exporter has not been able to arrange for repatriation of
the undrawn balance in spite of best efforts, authorised dealers on being satisfied
with the bona fides of the case, should ensure that the exporter has realised at
least the value for which the bill was initially drawn (excluding undrawn
balances) or 90% of the value declared on GR/PP/SDF form, whichever is more
and a period of one year has elapsed from the date of shipment.
C. 6 Consignment Exports
(i) When goods have been exported on consignment basis, authorised dealer,
while forwarding shipping documents to his overseas branch/correspondent,
should instruct the latter to deliver them only against trust receipt/undertaking to
deliver sale proceeds by a specified date within the period prescribed for
realisation of proceeds of the export. This procedure should be followed even if,
according to the practice in certain trades, a bill for part of the estimated value is
drawn in advance against the exports.
(ii) The agents/consignees may deduct from sale proceeds of the goods expenses
normally incurred towards receipt, storage and sale of the goods, such as landing
m
o
charges, warehouse rent, handling charges, etc. and remit the net proceeds to the
exporter
. c
a
m
(iii) The account sales received from the Agent/Consignee should be verified by
a
the authorised dealer. Deductions in Account Sales should be supported by
y n
bills/receipts in original except in case of petty items like postage/cable charges,
stamp duty etc.
d
t u
Notes :
S
A. In case of goods exported on consignment basis, freight and marine
insurance must be arranged in India.
(a) Applicant's export outstanding does not exceed 5 per cent of exports
made during the previous year.
(c) Period of realisation should be as applicable i.e., 180 days for non-
status holder exporters and 365 days for status holder exporters.
m
(d) All transactions should be routed through the designated branch of
the authorized dealer.
c o
. initially for a period of
a
The above permissions may be granted to the exporters
yn
permission / approvals should maintain a proper record of the approvals granted.
C-7 Despatchu
d
t of Shipping Documents
m
o
(iv) Documents in respect of goods exported against 100% advance remittance,
. c
in terms of paragraph C.4 may be directly sent by the exporter to the consignee.
a
m
(v) Authorised Dealers may permit `Status Holder Exporters' (as defined in the
a
EXIM Policy), and units in Special Economic Zones (SEZ) to despatch the
y n
export documents to the consignees outside India subject to the terms and
conditions that
d
u
t the export proceeds are repatriated through the authorised dealer
S named in the GR Form
a.
and
. c
GR/SDF/PP form is submitted to Reserve Bank should be available.
ii. a
Authorised dealers should ensure that all types of export transactions are
m
a
entered in the Export Bills Register and are given bill numbers on
yn
calendar year basis (i.e. January to December). The bill numbers should
d
be recorded in ENC statement and other relevant returns submitted to
t u
Reserve Bank.
S of Overdue Bills
C.10 Follow-up
(i) Authorised dealers should closely watch realisation of bills and in cases
where bills remain outstanding, beyond the due date for payment or six months
from the date of export, the matter should be promptly taken up with the
concerned exporter. If the exporter fails to arrange for delivery of the proceeds,
within six months or seek extension of time beyond six months the matter
should be reported to Reserve Bank stating, where possible, the reason for the
delay in realising the proceeds. The duplicate copies of GR / SDF / PP Forms
should, however, continue to be held by authorised dealer until full proceeds are
realised except in case of undrawn balances covered by Note under paragraph C
5. Authorised dealers should follow up export outstandings with exporters
systematically and vigorously so that action against defaulting exporters does
not get delayed. Any laxity in the follow up of realisation of export proceeds by
authorised dealers will be viewed seriously by Reserve Bank leading to the
invocation of the penal provision under FEMA 1999.
(ii) Exporters who have been certified as `Status Holder' in terms of EXIM
Policy are permitted to realise and repatriate the full value of export proceeds
within a period of 12 months from the date of shipment.
m
o
(iii) The stipulation of twelve months or extended period thereof for realisation
. c
of export proceeds is no longer applicable for units located in Special Economic
a
Zones (SEZs). The units in SEZs will however continue to follow the GR/ PP /
m
Softex export procedure outlined in Section B - Part III of this circular.
a
y n
(iv) Authorised dealers should furnish to Reserve Bank, on half-yearly basis, a
d
consolidated statement in Form XOS giving details of all export bills
t u
outstanding beyond six months from the date of export as at the end of June and
C. 12 Reduction in Value
If, after a bill has been negotiated or sent for collection, the amount thereof is
desired to be reduced for any reason, authorised dealer may approve such
reduction, if satisfied about genuineness of the request, provided :
m
availed of, if any.
a
n
In the case of exporters who have been in the export business for more than
three years, reduction iny
dabove conditions as also subject to their track record being
invoice value may be allowed, without any percentage
u
ceiling, subject to the
satisfactory,t
S
i.e., the export outstandings do not exceed 5% of the average annual
export realisation during preceding three calendar years. For the purpose of
reckoning the percentage of outstanding export bills to average export
realisations during the preceding three calendar years, outstandings in respect of
exports made to countries facing externalisation problems may be ignored
provided the payments have been made by the buyers in the local currency.
C. 13 Export Claims
Authorised dealers may remit export claims on application, provided the relative
export proceeds have already been realised and repatriated to India and the
exporter is not on the caution list of Reserve Bank. In all such cases of
remittances, the exporter should be advised to surrender proportionate export
incentive, if any, received by him.
Prior approval of Reserve Bank is not required if, after goods have been
shipped, they are to be transferred to a buyer other than the original buyer in the
m
event of default by the latter, provided the reduction in value, if any, involved
c o
does not exceed 10% and the realisation of export proceeds is not delayed
. Where the reduction in
a
beyond the period of six months from the date of export.
m
value exceeds 10%, all other relevant conditions stipulated in paragraph C.12
should also be satisfied.
a
C.15 Extension of timey
n
d
limit
u
t where an exporter has not been able to realise proceeds of a
1. (i) In cases
Smade within the period prescribed (i.e., within six months from the
shipment
date of export), for reasons beyond his control, but expects to be able to realise
proceeds if extension of the period is allowed to him, necessary application (in
duplicate) should be made to the concerned Regional Office of Reserve Bank in
form ETX through his authorised dealer with appropriate documentary evidence
other than cases referred to in item (ii) below.
(ii) Reserve Bank of India have permitted authorised dealers to extend the period
of realization of export proceeds beyond 6 months from the date of export where
the invoice value does not exceed US $ 1,00,000 subject to following
conditions;
a. The Authorised Dealer is satisfied that the exporter has not been
able to realise export proceeds for reasons beyond his control
a amount involved.
3. Cases which are not y
n
dprior approval from the Regional Office of the Reserve
covered by the above instructions and cases indicated
t u
below would require
S
Bank.
All the export bills outstanding beyond six months from the date of export may
be reported in XOS statement as usual. However, where extension of time has
been granted by authorized dealer, the date upto which extension has been
granted may be indicated in the 'Remarks' column.
. c
products specified. This relaxation has been further extended upto September
30, 2003.
a
m
C. 16 Shipments Lost in Transit
a
yn
d
When shipments from India for which payment has not already been received
u
t dealer must ensure that insurance claim is made as soon as the
either by negotiation of bills under letters of credit or otherwise are lost in
S
transit, authorised
loss is known. The duplicate copy of GR/SDF/PP form should be forwarded to
Reserve Bank with following particulars :
In cases where claim is payable abroad, authorised dealer must arrange to collect
the full amount of claim due on the lost shipment, through the medium of his
overseas branch/correspondent and forward the duplicate copy of GR/SDF/PP
form to Reserve Bank only after the amount has been collected. A certificate for
the amount of claim received should be furnished on the reverse of the duplicate
copy.
Note : Sometimes claims on shipments lost in transit are also partially settled
directly by shipping companies/airlines under carrier‘s liability. Authorised
dealers should ensure that amounts of such claims if settled abroad are also
repatriated to India by exporters.
m
Where export has been covered by a policy issued by ECGC, settlement of a
c o
claim by the Corporation does not absolve the exporter of the statutory
obligation undertaken on the GR/SDF/PP form to .
a realise proceeds of the export
m
within prescribed period. In such cases, exporter should, in consultation with
a
ECGC, take all necessary steps for realising the proceeds. Authorised dealers
should also continue to holdn
y
the duplicate copies of GR/SDF/PP forms in their
d
custody and initiate follow-up measures in the normal manner.
u
t off" of Unrealised Export Bills
S
C. 18.A "Write
(i) An exporter who has not been able to realise the outstanding export dues
despite best efforts, may approach the authorised dealer, who had handled the
relevant shipping documents, with appropriate supporting documentary evidence
with a request for write off of the unrealised portion. Authorised dealers may
accede to such requests subject to the undernoted conditions :
y n
country;
iv.
dThe unrealised amount represents the balance due in a
tu case settled through the intervention of the Indian
S Embassy, Foreign Chamber of Commerce or similar
Organisation;
vii. Bills were drawn for the difference between the letter of
credit value and actual export value or between the
provisional and the actual freight charges but the amount
has remained unrealised consequent on dishonour of the
bills by the overseas buyer and there are no prospects of
realisation.
e. The case is not the subject matter of any pending civil or criminal
suit;
m
o
f. The exporter has not come to the adverse notice of the
. c
Enforcement Directorate or the Central Bureau of Investigation
a
or any such other law enforcement agency;
u
of export
t to be written off. Authorised dealers are to put in place a system
S under which their internal inspectors or auditors carry out random
sample check/percentage check of outstanding export bills
written off.
(ii) Where there is no further amount to be realised against the GR/SDF/PP form
covered by the write off, authorised dealer should certify the duplicate form as
under :
"Write off of...........………………………………..
(Amount in words and figures)
Date …………………………..
(iii) Status holders exporters (viz. Export Houses, Trading Houses, Star Trading
Houses, Superstar Trading Houses) and manufacturer exporters exporting more
than 50% of their production, and recognised as such by DGFT, may be
m
o
permitted to " write off" outstanding export bills upto an annual limit of 5% of
c
.
their average annual realisations (not turnover) during the preceding three
a
calendar years. The limit of 5% will be cummulatively available in a year and
m
a
subject to the following conditions.
y n
1. The exporter should submit to the concerned authorised dealer a Chartered
d indicating –
u
Accountant‘s certificate
a. S
t
the export realisation in the preceding three calendar years and also the
amount of "write off " already availed of during the year, if any.
b. the relevant GR/SDF Nos. to be written off, Bill No., invoice value,
commodity exported, country of export,
2. It is clarified that the following do not qualify for the "write off" facility :-
a. Exports made to countries with externalisation problem i.e. where the
overseas buyer has deposited the value of export in local currency but the
amount has not been allowed to be repatriated by the central banking
authorities of the country.
3.After the "write off" has been permitted authorised dealer may certify the
duplicate form as under :-
m
"write off of ……………………………………………….
c o
.
a
(Amount in words and figures)
m
a
permitted in terms of AP(DIR Series) Circular No.30 dated April 4,
yn
2001."
d
tu
Date
4. Authorised dealers may note to take into account the amount written off under
this facility while arriving at the eligible amount under paragraph C.18 of AP
(DIR Series) Circular No.12 of September 9, 2000.
5. Authorised dealers may forward a statement in form EBW to the Regional
Office of Reserve Bank under whose jurisdiction they are functioning,
indicating details of write offs etc.
Authorised dealers may allow requests received from exporters for 'netting off'
of export receivables against import payments for units located in Special
Economic Zones subject to the following :
m
respect of the same Indian entity and the overseas buyer / supplier
c o
(bilateral netting). The netting may be done as on date of balance
.
sheet of the unit in SEZ.
a
(ii)
m
The details of export of goods is documented in GR(O) forms / DTR
a details of import of goods / services is
recorded throughn
as the case may be while
(iv) The export / import transactions with ACU countries are kept outside
the arrangement.
(v) All the relevant documents are submitted to the concerned authorised
dealer who should comply with all the regulatory requirements
relating to the transactions.
C. 19 Return of Documents to Exporters
m
documents covering exports declared on GR/SDF/PP forms completed by such
c o
exporters nor countersign PP forms completed by them unless the GR/SDF/PP
.
forms bear approval of Reserve Bank.
a
m
a
Section D – REMITTANCES CONNECTED WITH EXPORT
yn
D.1 Agency Commission on Exports
d
tu
(i) Authorised dealers may allow payment of commission, either by remittance
S
or by deduction from invoice value, on application submitted by the exporter.
The remittance on agency commission may be allowed subject to the following
conditions:
m
b. The commission is not payable to Escrow Account holders themselves.
c o
.
c. The commission should not be allowed by deduction from the invoice
value.
a
m
a
NOTE : Payment of commission is prohibited on exports made
n
y / wholly owned subsidiary as also exports under
by Indian Partners towards equity participation in an overseas
d
joint venture
t u
Rupee Credit Route.
S
D.2 Refund of Export Proceeds
(i) These Regulations may be called the Foreign Exchange Management (Export of
Goods and Services) Regulations, 2000. m
c o
They shall come into force on 1 day of June,.
a
st
(ii) 2000.
m
2. Definitions :-
a
n
In these Regulations, unlessy
d the context requires otherwise, -
u
t the Foreign Exchange Management Act, 1999 (42 of 1999) ;
(i)
S
'Act' means
(ii) 'authorised dealer' means a person authorised as an authorised dealer under sub-
section (1) of section 10 of the Act, and includes a person carrying on business as a
factor and authorised as such under the said section 10 ;
(iii) 'Exim Bank' means the Export-Import Bank of India established under the Export-
Import Bank of India Act, 1981 (28 of 1981);
(iv) 'export' includes the taking or sending out of goods by land, sea or air, on
consignment or by way of sale, lease, hire-purchase, or under any other arrangement
by whatever name called, and in the case of software, also includes transmission
through any electronic media ;
(v) 'export value' in relation to export by way of lease or hire-purchase or under any
other similar arrangement, includes the charges, by whatever name called, payable in
respect of such lease or hire-purchase or any other similar arrangement;
(viii) 'software' means any computer programme, database, drawing, design, audio/video
signals, any information by whatever name called in or on any medium other than in
or on any physical medium ;
m
o
* Note: Amendment to Regulation 6D & Regulation 9(2)(a) is being notified
c
shortly
.
a
m
a
(ix) 'specified authority' means the person or the authority to whom the declaration as
yn
specified in Regulation 3 is to be furnished;
(x) 'Working Group' means the Group constituted by the Reserve Bank for the purpose
d
of considering proposals of export of goods and services on deferred payment terms
tu
or in execution of a turnkey project or a civil construction contract;
(xi) S
the words and expressions used but not defined in these Regulations shall have the
same meanings respectively assigned to them in the Act.
(1) Every exporter of goods or software in physical form or through any other form,
either directly or indirectly, to any place outside India, other than Nepal and Bhutan,
shall furnish to the specified authority, a declaration in one of the forms set out in the
Schedule and supported by such evidence as may be specified, containing true and
correct material particulars including the amount representing -
(i) the full export value of the goods or software; or
(ii) if the full export value is not ascertainable at the time of export, the value which the
exporter, having regard to the prevailing market conditions expects to receive on the
sale of the goods or the software in overseas market, and affirms in the said
declaration that the full export value of goods (whether ascertainable at the time of
export or not) or the software has been or will within the specified period be, paid in
the specified manner.
(3) For the removal of doubt, it is clarified that, in respect of export of services to which
none of the Forms specified in these Regulations apply, the exporter may export such
m
services without furnishing any declaration, but shall be liable to realise the amount
c o
of foreign exchange which becomes due or accrues on account of such export, and to
repatriate the same to India in accordance with the provisions of the Act, and these
.
Regulations, as also other rules and regulations made under the Act.
a
m
a
4. Exemptions :-
yn
Notwithstanding anything contained in Regulation 3, export of goods or services may be
d
made without furnishing the declaration in the following cases, namely:
tu
a) S
trade samples of goods and publicity material supplied free of payment;
c) ship's stores, trans-shipment cargo and goods supplied under the orders of Central
Government or of such officers as may be appointed by the Central Government in
this behalf or of the military, naval or air force authorities in India for military, naval
or air force requirements;
d) goods or software accompanied by a declaration by the exporter that they are not
more than twenty five thousand rupees in value;
e) by way of gift of goods accompanied by a declaration by the exporter that they are
not more than one lakh rupees in value;
f) aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad
subject to their reimport into India after overhauling /repairs, within a period of six
months from the date of their export;
h) goods not exceeding U.S.$ 1000 or its equivalent in value per transaction exported to
Myanmar under the Barter Trade Agreement between the Central Government and
the Government of Myanmar;
m
c o
.
i) The following goods which are permitted by the Development Commissioner of the
a
Export Processing Zones, Electronic Hardware Technology Parks, Electronic
Software Technology Parks or Free Trade Zones to be re-exported, namely:
m
a
yn
1) imported goods found defective, for the purpose of their replacement by the
foreign suppliers/collaborators;
2) goodsu
d
t imported from foreign suppliers/collaborators on loan basis;
S
3) goods imported from foreign suppliers/collaborators free of cost, found surplus
after production operations.
(ia) goods listed at items (1), (2) and (3) of clause (I) to be re-exported by units in Special
Economic Zones, under intimation to the Development Commissioner of Special
Economic Zones/concerned Assistant Commissioner or Deputy Commissioner of
Customs;
j) replacement goods exported free of charge in accordance with the provisions of Exim
Policy in force, for the time being.
k) goods sent outside India for testing subject to re-import into India;
l) defective goods sent outside India for repair and re-import provided the goods are
accompanied by a certificate from an authorised dealer in India that the export is for
repair and re-import and that the export does not involve any transaction in foreign
exchange;
m) exports permitted by the Reserve Bank, on application made to it, subject to the terms
and conditions, if any, as stipulated in the permission.
The importer-exporter code number allotted by the Director General of Foreign Trade under
Section 7 of the Foreign Trade (Development & Regulation) Act, 1992 (22 of 1992) shall be
indicated on all copies of the declaration forms submitted by the exporter to the specified
authority and in all correspondence of the exporter with the authorised dealer or the Reserve
Bank, as the case may be.
6.
m
Authority to whom declaration is to be furnished and the manner of dealing with the
declaration :-
c o
A. Declaration in Form GR/SDF
.
a
(1) (i)
m
The declaration in form GR/SDF shall be submitted in duplicate to the Commissioner
of Customs.
a
yn
(ii)
d
After duly verifying and authenticating the declaration form, the Commissioner of
tu
Customs shall forward the original declaration form/data to the nearest office of the
Reserve Bank and hand over the duplicate form to the exporter for being submitted to
S
the authorised dealer.
B. Declaration in Form PP
(2) (i) The declaration in form PP shall be submitted in duplicate to the authorised dealer
named in the form.
(ii) The authorised dealer shall, after countersigning the declaration form, hand over the
original form to the exporter who shall submit it to the postal authorities through
which the goods are being despatched. The postal authorities after despatch of the
goods shall forward the declaration form to the nearest office of the Reserve Bank.
C. Declaration in Form SOFTEX
(3) (i) The declaration in form SOFTEX in respect of export of computer software and
audio/video/television software shall be submitted in triplicate to the designated
official of Ministry of Information Technology, Government of India at the Software
Technology Parks of India (STPIs) or at the Free Trade Zones (FTZs) or Export
Processing Zones (EPZs) or Special Economic Zones (SEZs) in India.
(ii) After certifying all three copies of the SOFTEX form, the said designated official
shall forward the original directly to the nearest office of the Reserve Bank and return
the duplicate to the exporter. The triplicate shall be retained by the designated official
for record.
m
D. Submission of duplicate declaration forms to the Reserve Bank
c o
.
a
On realisation of the export proceeds, the authorised dealer shall, after due certification,
m
submit the duplicate of the GR/SDF, PP or as the case may be, SOFTEX form to the nearest
office of the Reserve Bank.
a
y n
7.
d
Evidence in support of declaration :-
u
t of Customs or the postal authority or the official of Ministry of
STechnology to whom the declaration form is submitted, may, in order to satisfy
The Commissioner
Information
themselves of due compliance with Section 7 of the Act and these regulations, require such
evidence in support of the declaration as may establish that -
a) the exporter is a person resident in India and has a place of business in India;
b) the destination stated on the declaration is the final place of the destination of the
goods exported;
2) where the full export value of the goods or software is not ascertainable at the
time of export, the value which the exporter, having regard to the prevailing
market conditions expects to receive on the sale of the goods in the overseas
market.
Explanation :
For the purpose of this regulation, 'final place of destination' means a place in a country in
which the goods are ultimately imported and cleared through Customs of that country.
m
.
8. Manner of payment of export value of goods :-
c o
.
a
Unless otherwise authorised by the Reserve Bank, the amount representing the full export
m
value of the goods exported shall be paid through an authorised dealer in the manner
a
specified in the Foreign Exchange Management (Manner of Receipt and Payment)
yn
Regulations, 2000.
d
tu
Explanation :
S
For the purpose of this regulation, re-import into India, within the period specified for
realisation of the export value, of the exported goods in respect of which a declaration was
made under Regulation 3, shall be deemed to be realisation of full export value of such
goods.
The amount representing the full export value of goods or software exported shall be realised
and repatriated to India within six months from the date of export :
Provided that where the goods are exported to a warehouse established outside India with the
permission of the Reserve Bank, the amount representing the full export value of goods
exported shall be paid to the authorised dealer as soon as it is realised and in any case within
fifteen months from the date of shipment of goods;
Provided further that the Reserve Bank, or subject to the directions issued by that Bank in
this behalf, the authorised dealer may, for a sufficient and reasonable cause shown, extend
the said period of six months or fifteen months, as the case may be.
Explanation :
For the purpose of this regulation, the "date of export" in relation to the export of software in
other than physical form, shall be deemed to be the date of invoice covering such export.
(2)
m
(a) Where the export of goods or software has been made by a unit situated in a
o
Special Economic Zone or by a Status Holder Exporter, as defined in the Exim
c
.
Policy in force , then notwithstanding anything contained in sub-regulation (1),
a
the amount representing the full export value of goods or software shall be
realised and repatriated to India within twelve months from the date of export;
m
a
Provided that the Reserve Bank may for a sufficient and reasonable cause shown,
yn
extend the said period of twelve months
d
(b) The Reserve Bank may for reasonable and sufficient cause direct that the unit
u
shall cease to be governed by sub-regulation (2):
t that no such direction shall be given unless the unit has been given a
S
Provided
reasonable opportunity to make a representation in the matter;
(c) On such direction, the unit shall be governed by the provisions of sub-regulation
(1), until directed otherwise by the Reserve Bank.
No person shall enter into any contract to export goods on the terms which provide for a
period longer than six months for payment of the value of the goods to be exported :
Provided that the Reserve Bank may, for reasonable and sufficient cause shown, grant
approval to enter into a contract on such terms.
The documents pertaining to export shall, within 21 days from the date of export as, as the
case may be, from the date of certification of SOFTEX form, be submitted to the authorised
dealer mentioned in the relevant declaration form:
Provided that, subject to the directions issued by the Reserve Bank from time to time, the
authorised dealer may accept the documents pertaining to export submitted after the expiry of
m
the specified period of 21 days, for reasons beyond the control of the exporter.
c o
12. Transfer of documents :-
.
a
m
Without prejudice to Regulation 3, an authorised dealer may accept, for negotiation or
a
collection, shipping documents including invoice and bill of exchange covering exports, from
yn
his constituent (not being a person who has signed the declaration in terms of Regulation 3) :
d
tu
Provided that before accepting such documents for negotiation or collection, the
authorised dealer shall -
S
a) Where the value declared in the declaration does not differ from the value shown in
the documents being negotiated or sent for collection, or
b) Where the value declared in the declaration is less than the value shown in the
documents being negotiated or sent for collection,
require the constituent concerned also to sign such declaration and thereupon such
constituent shall be bound to comply with such requisition and such constituent signing the
declaration shall be considered to be the exporter for the purposes of these Regulations to the
extent of the full value shown in the documents being negotiated or sent for collection and
shall be governed by these Regulations accordingly.
(i) That the payment for the goods or software is made otherwise than in the specified
manner; or
(ii)
m
That the payment is delayed beyond the period specified under these Regulations; or
c o
.
a to such deductions, if any, as may be
(iii) That the proceeds of sale of the goods or software exported do not represent the full
export value of the goods or software subject
m
allowed by the Reserve Bank or, subject to the directions of the Reserve Bank, by an
authorised dealer;
a
yn
d period has expired and payment for the goods or software
Provided that no proceedings in respect of contravention of these provisions shall be
t u
instituted unless the specified
representing the full export value, or the value after deductions allowed under clause (iii), has
S
not been made in the specified manner within the specified period.
No person shall, except with the prior permission of the Reserve Bank, take or send out by
land, sea or air any goods from India to any place outside India on lease or hire or under any
arrangement or in any other manner other than sale or disposal of such goods.
(ii) An export under the line of credit extended to a bank or a financial institution
operating in a foreign state by the Exim Bank for financing exports from India, shall
be governed by the terms and conditions advised by the Reserve Bank to the
authorised dealers from time to time.
C. Counter Trade
m
Any arrangement involving adjustment of value of goods imported into India against value of
o
goods exported from India, shall require prior approval of the Reserve Bank.
c
.
Delay in Receipt of Payment :- a
m
15.
a
y n
d period has expired and the payment therefor has not been made
Where in relation to goods or software export of which is required to be declared on the
u
specified form, the specified
tReserve Bank may give to any person who has sold the goods or software or
as aforesaid, the
appear toS
who is entitled to sell the goods or software or procure the sale thereof, such directions as
it to be expedient, for the purpose of securing, (a) the payment therefor if the goods
or software has been sold and (b) the sale of goods and payment thereof, if goods or software
has not been sold or re-import thereof into India as the circumstances permit, within such
period as the Reserve Bank may specify in this behalf ;
Provided that omission of the Reserve Bank to give directions shall not have the effect of
absolving the person committing the contravention from the consequences thereof.
i) The shipment of goods is made within one year from the date of receipt of advance
payment;
ii) The rate of interest, if any, payable on the advance payment does not exceed London
Inter-Bank Offered Rate (LIBOR) + 100 basis points, and
iii) The documents covering the shipment are routed through the authorised dealer
through whom the advance payment is received;
m
Provided that in the event of the exporter's inability to make the shipment, partly or fully,
o
within one year from the date of receipt of advance payment, no remittance towards refund of
c
unutilised portion of advance payment or towards payment of interest, shall be made after the
.
expiry of the said period of one year, without the prior approval of the Reserve Bank.
a
(2) m
Notwithstanding anything contained in clause (i) of sub-regulation (1), where the
a
export agreement provides for shipment of goods extending beyond the period of one
yn
year from the date of receipt of advance payment, the exporter shall require the prior
approval of the Reserve Bank.
d
t u
17.
S
Issue of directions by Reserve Bank in certain cases :-
(1) Without prejudice to the provisions of Regulation 3 in relation to the export of goods
or software which is required to be declared, the Reserve Bank may, for the purpose
of ensuring that the full export value of the goods or, as the case may be, the value
which the exporter having regard to the prevailing market conditions expects to
receive on the sale of goods or software in the overseas market, is received in proper
time and without delay, by general or special order, direct from time to time that in
respect of export of goods or software to any destination or any class of export
transactions or any class of goods or software or class of exporters, the exporter shall,
prior to the export, comply with the conditions as may be specified in the order,
namely ;
a) that the payment of the goods or software is covered by an irrevocable letter of
credit or by such other arrangement or document as may be indicated in the order ;
m
c o
No direction under sub-regulation (1) shall be .
athe Reserve Bank, unless the exporter has
(2) given, and no approval under clause (b)
of that sub-regulation shall be withheld by
m
been given a reasonable opportunity to make a representation in the matter.
a
18. Project exports
yn
d
Where an exportu
t of goods or services is proposed to be made on deferred payment terms or
entering S
in execution of a turnkey project or a civil construction contract, the exporter shall, before
into any such export arrangement, submit the proposal for prior approval of the
approving authority, which shall consider the proposal in accordance with the guidelines
issued by the Reserve Bank from time to time.
Explanation:
For the purpose of this Regulation, 'approving authority' means the Working Group or the
Exim Bank or the authorised dealer
Schedule
( Refer to Regulation 3)
Form GR: To be completed in duplicate for export otherwise than by Post including export
of software in physical form i.e. magnetic tapes/discs and paper media.
Form SDF: To be completed in duplicate and appended to the shipping bill, for exports
declared to Customs Offices notified by the Central Government which have
m
introduced Electronic Data Interchange (EDI) system for processing shipping bills
o
notified by the Central Government.
yn
in physical form, i.e. magnetic tapes/discs, and paper media.
d
t uMaster Circular- Import of Goods and Services
S
Import of Goods and Services into India is being allowed in terms of
Section 5 of the Foreign Exchange Management Act 1999 (42 of 1999), read
with Notification No. GSR 381(E) dated May 3, 2000 as amended from time to
time.
2. This Master Circular consolidates the existing instructions on the subject
of “Import of Goods and Services” at one place. The list of underlying
circulars is set out at Annex -1.
m
c o
Sl.
. Date
a
Circular No.
No.
1. AP (DIR Series) circular no 106
m June 19, 2003
a
yn
2. AP (DIR Series) circular no 4 July 19, 2003
3.
d
AP (DIR Series) circular no 9 August 18,2003
4. tu
AP (DIR Series) circular no 15 September 17,2003
5.
S
AP (DIR Series) circular no 49 December 15,2003
Introduction
m
o
Authorised dealers should follow normal banking procedures and adhere to the
c
. into India on behalf of
provisions of Uniform Customs and Practices for Documentary Credits
a
(UCPDC), etc. while opening letters of credit for import
m
their constituents. In respect of import of drawings and designs, compliance with
A.1 General
Rules and Regulations from the Exchange Control angle to be followed by the
authorised dealers while undertaking import payment transactions on behalf of
their clients are set out in the following paragraphs. Where specific regulations
do not exist, authorised dealers may be governed by normal trade practices.
Authorised dealers may particularly note to adhere to "Know Your Customer"
(KYC) guidelines issued by Reserve Bank (Department of Banking Operations
& Development)in all their dealings.
A.2 Form A 1
letters of credit and allow remittances for import of goods unless they are
included in the negative list requiring licence under the EXIM Policy in force. In
m
o
such cases, licences marked ‗For Exchange Control purposes‘ should be called
c
.
for and special conditions, if any, attached to such licences adhered to.Exchange
a
Control copy of the import licence submitted by importer for opening of Letter
m
of Credit or making remittance, when fully utilised, should be retained by
a
yn
authorised dealers and may be preserved till its scrutiny by the internal auditors
or inspectors is completed.
d
tu
A.4 Obligation of Purchaser of Foreign Exchange
i. S
In terms of Section 10(6) of the Foreign Exchange Management
Act,1999 (FEMA), any person acquiring foreign exchange is permitted
to use it either for the purpose mentioned in the declaration made by him
to an authorised dealer under Section 10(5)of the Act or to use it for any
other purpose for which acquisition of exchange is permissible under the
said Act, or Rules or Regulations framed thereunder.
ii. Where foreign exchange acquired has been utilised for import of goods
into India the authorised dealer should ensure that importer furnishes an
evidence of import to his satisfaction, as laid down in paragraph A.10.
iii. In addition to the permitted methods of payment for imports laid down in
Notification No.FEMA14/2000-RB dated 3rd May 2000, payment for
import can also be made by way of credit to non-resident account of the
overseas exporter maintained with a bank in India. In such cases also
authorised dealer should ensure compliance with the instructions
contained in sub-paragraphs (i) and (ii) above.
m
payment arrangements including suppliers and buyers credit providing for
o
payments beyond a period of six months from date of shipment upto a period of
c
.
less than three years are treated as trade credits for which the procedural
a
guidelines laid down in the Master Circular for trade credits may be followed.
m
a
(ii.) Authorised dealers may permit settlement of import dues delayed due to
n
yof the directions in para A.7 below.
disputes, financial difficulties etc. Interest in respect of such delayed payments
d
may be permitted in terms
u
t against import of books may be allowed without restriction
NOTE: Remittances
Slimit, provided, interest payment, if any, is as per the instructions in
as to time
para A.7
Authorised dealers may allow advance remittance for import of goods without
any ceiling subject to the following conditions :
ii). In cases where the importer (other than a Public Sector Company or a
Department/Undertaking of the Government of India/State
Governments) is unable to obtain bank guarantee from overseas
suppliers and the Authorised Dealer is satisfied about the track record
and bonafides of the importer, the requirement of the bank guarantee/
standby Letter of Credit may not be insisted upon for advance
remittances upto USD 1,000,000 (US dollar one million). Authorised
Dealers may frame their own internal guidelines to deal with such cases
m
o
as per a suitable policy framed by the bank's Board of Directors.
. c
iii) A Public Sector Company or a Department/Undertaking of the
a
Central/State Government/s which is not in a position to obtain a
m
a
guarantee from an international bank of repute against an advance
u
advance remittance
t
S
b. Physical import of goods into India is made within six months (three
years in case of capital goods) from the date of remittance and the
importer gives an undertaking to furnish documentary evidence of
import within fifteen days from the close of the relevant period.
Where goods are short-supplied, damaged, short-landed or lost in transit and the
Exchange Control copy of the import licence has already been utilised to cover
the opening of a letter of credit against the original goods which have been lost,
the original endorsement to the extent of the value of the lost goods may be
cancelled by authorised dealers and fresh remittance for replacement imports
m
permitted without reference to Reserve Bank, provided the insurance claim
c o
relating to the lost goods has been settled in favour of the importer. It may be
ensured that the consignment being replaced is.shipped within the validity
a
m
period of the licence.
ii. Where imports are made in non-physical form, i.e., software or data
m
through internet/datacom channels and drawings and designs through e-
c o
mail/fax, a certificate from a Chartered Accountant that the
. by the importer, may
a
software/data/ drawing/ design has been received
m
be obtained.
m
obtaining clearance from the investigating agency concerned.
A.10.2
c o
. copy of Bill of Entry for
a
Authorised dealers may accept either Exchange Control
yn provided :-
actually been imported into India
the amountd
i.
u of foreign exchange remitted is less than USD 1,000,000
tone million) or its equivalent,
S
(USD
ii. the importer is a company listed on a stock exchange in India and whose
net worth is not less than Rs.100 crores as on the date of its last audited
balance sheet,
or
ii.
m
Authorised dealers should forward to Reserve Bank a statement on half-
c o
yearly basis as at the end of June & December of every year, in form
. of import transactions,
exceeding USD 100,000 in respect of a
BEF(format enclosed) furnishing details
a
submission of appropriate document
n
yRegional Office of Reserve Bank under whose
from the date of remittance. The said half-yearly statement should be
d
submitted to the
t u
jurisdiction the authorised dealer is functioning, within 15 days from the
S
close of the half-year to which the statement relates.
i. Import bills and documents should be received from the banker of the
supplier by the banker of the importer in India. Authorised dealers
should not, therefore, make
a. Where the value of import bill does not exceed USD 100,000.
b. Import bills received by wholly-owned Indian subsidiaries of
foreign companies from their principals.
ii. At the request of importer clients, authorised dealers may receive bills
direct from the overseas supplier as above, provided the authorised
m
dealer is fully satisfied about the financial standing/status and track
c o
record of the importer customer. Before extending the facility, authorised
. overseas supplier from the
a
dealer should obtain report on each individual
m
overseas banker or reputed credit agency.
a by Nominated Banks/Agencies
A.13 Import of Gold/Platinum/Silver
Merchanting Trade a
m
a
Authorised dealers may take necessary precautions in handling merchanting
yn
trade transactions or intermediary trade transactions to ensure that (a) goods
d
involved in the transactions are permitted to be imported into India, (b) such
u
months, andt(c) all rules, regulations and directions applicable to export out of
transactions do not involve foreign exchange outlay for a period exceeding three
S
India (except Export Declaration Form) are complied with in respect of the
export leg and all rules, regulations and directions applicable to import (except
Bill of Entry) are complied with in respect of the import leg of merchanting
trade transactions. Authorised dealers are also required to ensure timely receipt
of payment for the export leg of such transactions.
Authorized Dealers may note that short-term credit either by way of suppliers'
credit or buyers' credit is not available for merchanting trade or intermediary
trade transactions. While undertaking bonafide merchanting trade transactions
on behalf of their trader clients, authorized dealers should ensure that the terms
of payment for the import leg and the export leg of the transactions are such that
i. the liability for the import leg of the transaction is extinguished by the
payment received for the export leg of the transaction, without any delay
and
Section – C
Import of Currency
c
.
Foreign Exchange Management (Export and Import of Currency) Regulations
a
2000, made by Reserve Bank vide Notification No.FEMA 6/RB- 2000 dated
m
May 3, 2000 and No.FEMA 38/RB-2001 dated February 27, 2001.
aBEF
yn
d (See paragraph A.11)
u
t the details of remittances effected towards import in respect
Statement showing
Sdocumentary evidence has not been received despite reminders
of which
NOTES:
iv. Authorised dealers may accept ‗Into Bond Bill of Entry‘ as a provisional
evidence of import into India. However, they may ensure submission of
Exchange Control copy of the Bill of Entry for Home consumption
m
within a reasonable period of time. Where EDI system has been
o
implemented by customs and the importer receives only one copy of the
c
.
"ex-Bond Bill of Entry" from the customs, Authorised Dealers may
a
advise importer to submit a photocopy of the "ex-Bond Bill of Entry" for
m
a
home consumption after clearance of the goods from the warehouse /
as final evidencey
n
bond, which may be duly verified by the Authorised Dealer and accepted
of import. Cases where ‗Into Bond Bill of Entry‘ has
dneed not be reported in BEF statement.
u
been submitted
t
v.
S
The statement should include details of all remittances, exceeding USD
100,000 from India or payments from abroad in connection with imports,
including advance payments, delayed payments, etc. irrespective of the
source of funding (i.e. EEFC accounts/foreign currency accounts
maintained in India and abroad, payments out of external commercial
borrowings, foreign investments in the shares of importers etc.)
vi. The cases reported in Part I of statement for the previous half-year
should not be reported again in Part I of the statement for the current
half-year.
vii. In case no transaction is required to be reported, ‗NIL‘ statement should
be submitted.
viii. Statement should be submitted within 15 days from the close of the half-
year to which it relates.
Part I
m
Code of the licences,
o
No. Importe if any
c
r
. 7
1 2 3 4 5
a
6 8 9
m
a
A . Import by parties other than Public Sector Undertakings/Government Departments
yn
1
d
tu
2
S
3
Etc
3
4
Etc
Part II
yn
A. Import by parties other than Public Sector Undertakings/Government
d
Departments
1
tu
2 S
3
Etc
i. We certify that the particulars furnished above are true and correct as per
our records.
ii. We further certify that the statement includes all cases which are
required to be reported under the prescribed procedure.
iii. We undertake to continue to pursue the cases with the importers reported
in Part I of the statement.
Stamp
Place:
m
Date:
c o
.
Name
a :
Designation :
m
a
yn
Annex- 2
d
Foreign Exchange Management (Current Account Transactions) Rules
tu
G.S.R.381(E), May 3, 2000
S
(as amended by Notification S.O.301(E) dated March 30,2001, GSR 831(E)
dated December 17,2002,GSR.397(E) dated May 1,2003 and GSR.731 (E) dated
September 5,2003)
(2) They shall come into effect on the 1st day of June 2000.
(a) ―Act‖ means the Foreign Exchange Management Act, 1999 (42 of 1999);
a
by any person for the following purpose is prohibited, namely:
yn
a. a transaction specified in the Schedule I; or
d
tu
b. a travel to Nepal and/or Bhutan; or
S
c. a transaction with a person resident in Nepal or Bhutan.
Provided that the prohibition in clause (c) may be exempted by RBI subject to
such terms and conditions as it may consider necessary to stipulate by special or
general order.
Provided that this Rule shall not apply where the payment is made out of funds
held in Resident Foreign Currency (RFC) and Resident Foreign Currency
(Domestic) Account of the remitter.
6 (1) Nothing contained in Rule 4 or Rule 5 shall apply to drawal made out of
m
funds held in Exchange Earners‘ Foreign Currency (EEFC) account of the
c o
.
remitter.
a
(2) Notwithstanding anything contained in sub-rule (1), restrictions imposed
m
under rule 4 or rule 5 shall continue to apply where the drawal of foreign
a
yn
exchange from the Exchange Earners Foreign Currency (EEFC) Account is for
the purpose specified in items 10 and 11 of Schedule II, or item 3, 4, 11, 16 &
d
u
17 of Schedule III as the case may be.
t
S
7. Use of International Credit Card while outside India-
Nothing contained in Rule 5 shall apply to the use of International Credit Card
for making payment by a person towards meeting expenses while such person
is on a visit outside India.
However, the restrictions on the use of the card for prohibited items will
continue.
Schedule I
(See Rule 3)
c o
.
6. Payment of commission on exports under Rupee State Credit Route,
a
except commission upto 10% of invoice value of exports of tea and
m
a
tobacco.
n
yinterest income on funds held in Non-Resident Special
7. Payment related to "Call Back Services" of telephones.
d
u
8. Remittance of
t (Account) Scheme.
Rupee
S Schedule II
(See Rule 4)
m
remittance to their agents abroad General of Shipping
c o
6. Hiring of transponders by TV Channels Ministry of Information and Broadcasting
and Internet Service providers #
.
a
7. Remittance of container detention Ministry of Surface Transport (Director
m
charges exceeding the rate prescribed by General of Shipping)
Director General of Shipping a
8. Remittances yn
under technical Ministry of Industry and Commerce
d
collaboration agreements where payment
tu
of royalty exceeds 5% on local sales and
S
8% on exports and lump-sum payment
exceeds USD 2 million
10. Deleted #
Schedule III
(See Rule 5)
1. Deleted ##
a
amount prescribed by country of emigration.
yn
7. Remittance for maintenance of close relatives abroad,
d net salary (after deduction of taxes, contribution to
i.
u
t provident fund and other deductions) of a person who is resident
exceeding
ii. exceeding USD 100,000 per year, per recipient, in all other cases.
m
hospital/doctor abroad.
c o
10. Release of exchange for studies abroad exceeding the estimate from
the institution abroad or USD 100,000, per.academic year, whichever is
a
m
higher.
tu ##
S
12. Deleted
13. Deleted ##
14. Deleted ##
The investment is subject to investment not exceeding 200% of the net worth of
the company for a Joint Venture or Wholly Owned Subsidiary. It is necessary
for the Joint Venture or Wholly Owned Subsidiary conducting a bonafide
business.
If the firm by its early acts found in the caution list / list of defaulters prepared
by RBI, permission shall be declined. Nevertheless RBI can also decline
m
o
permission when any investigation is on for any FEMA violation again
. c
Establishment that has submitted up to date returns in form APR in respect of all
its overseas investments.
a
m
It is the responsibility of the firm to route all its investments overseas through
a
yn
one branch of an authorized dealer to be designated by it.
d
1. Investment under this Regulation may be funded out of one or more of
tu
the following sources, namely:
For the purpose of the limit of 100% of the net worth the following shall be
reckoned, namely:
(c) fifty percent of the value of guarantees issued by the Indian Party to or
on behalf of the joint venture company or wholly owned subsidiary
a
n
For the purpose of reckoning net worth of an Indian party, the net worth of its
y
holding company (which holds at least 51% stake in the Indian Party) or its
subsidiary companyd
tu to the extent not availed of by the holding company or the
(in which the Indian Party holds at least 51% stake) may be
taken into account
Sindependently and has furnished a letter of disclaimer in favor of the
subsidiary
Indian Party.
Provided further that the ceiling mentioned in sub-clause (2)(i) shall not apply
where the investment is made out of balances held in its EEFC account,
maintained in accordance with the Foreign Exchange Management (Foreign
Current Accounts by a Person Resident in India) Regulations, 2000, as amended
from time to time.
2. An Indian Party amy extend a loan or a guarantee to or behalf of the joint
venture / wholly owned subsidiary abroad, within the permissible
financial commitment, provided that the Indian Party has made
investment by way of contribution to the equity capital of the joint
venture.
3. An Indian party makes direct investment without any limit in any foreign
security out of the proceeds of its international offering of shares through
the mechanism of ADR and/or GDR.
Provided that
(a) the ADR/GDR issue has been made in accordance with the scheme for
m
issue of Foreign Currency Convertible Bonds and Ordinary Shares
c o
(through Depository Receipt Mechanism) Scheme 1993 and the
. to time by the Central
a
guidelines issued there under from time
m
Government
(b) the Indian Party files withathe designated authorized dealer in form ODA
yn proposed
full details of the investment
.
Wild Life
a
Protection Act,
1972
0106000320 Bees and other m
Prohibited Not permitted to
insects as a be imported.
yn
specified under
Wild Life
d Protection Act,
tu 1972
S
0106000920 Wild animals as
specified under
Prohibited Not permitted to
be imported.
Wild Life
Protection Act,
1972
0208900010 Meat and edible Prohibited Not permitted to
meat offal, fresh, be imported.
chilled or frozen
of wild animals
m
c o
.
a
m
a
yn
d
tu
S